The Balance Sheet Approach
The Balance Sheet is an approach originally designed by ORC that retains the expatriate in the home-country salary structure and provides allowances to enable the expatriate to maintain a standard of living broadly similar to that enjoyed at home.
Base salary is analyzed into four main expenditure categories income taxes, housing, goods and services, and reserve (pension contributions, savings and investments). The chart illustrates how these expenditures may be affected by an international assignment and how the employer maintains home-country purchasing power for the assignee.
- Home-country salary shows the basic level of each category at home.
- Assignment-location costs indicate that expenditures for income taxes, housing, and goods and services are typically higher abroad.
- Assignment-location costs paid by employer and from salary demonstrates that expatriates pay the same amount as their domestic counterparts, with the employer making up the difference, as indicated by the shaded portion of each category.
- Home-country equivalent purchasing power illustrates that expatriates have the same purchasing power as typical domestic peers, and may also receive incentives.
ORC offers several custom approaches to expatriate compensation as an alternative to the balance sheet method.