Cost-of-living Indexes
Not all expatriates are alike. Using just one cost-of-living comparison index for all may not be the best way to pay them fairly—or manage costs.
New assignees may prefer well known, costly international brands but later favor less expensive local products and vendors. Some may receive things directly from the company, such as a car or housing, while others provide their own. Some international workers relocate so often they no longer maintain a home location. A direct comparison of the cost-of-living between the home and host locations may work fine for many expatriates, but some may feel slighted, while others receive a windfall from an overly generous compensation package.
That's why ORC provides several options for comparing the cost of goods and services at home and in the assignment location, to help you pay expatriates fairly without incurring excessive cost.
Types of Indexes Provided by ORC
- Expatriate indexes for expatriates purchasing international brands in higher-priced retail outlets
- Efficient purchaser indexes (EPI) for expatriates who adapt to local purchasing conditions; this may be used after a transition period, immediately on assignment, or when the economies in the home and host locations are comparable
- Modified indexes based on the exclusion of goods and services provided directly by the company (private transportation, furnishings, etc.)
- International indexes that do not directly link to any home weighting pattern and are appropriate for highly mobile employees, who no longer retain any ties to a specific home location
- European Union (EU) indexes using an averaged EU home weighting pattern
- Custom indexes based on a special pricing in locations
that ORC does not price, or when data specifications differ sufficiently
from ORC’s normal approach; accomplished one of two ways:
- Jointly: The client conducts the special pricing, which ORC processes, and then provides an index and analysis
- By ORC: ORC conducts the special pricing and provides the subsequent index and analysis
To calculate an index, ORC tracks price differences between home and assignment locations through periodic pricing surveys that are appropriately weighted to represent typical spending patterns. The price comparison is expressed as an index, calculated at the exchange rate in effect at that time. An index of 100 means that assignment costs are equal to home costs, while an index of 140 means goods and services costs in the host location are 40 percent higher than costs in the expatriate’s home country.
The type of index used should reflect your company’s compensation approach.