A Look Ahead: Trends in Assignment Types, Destinations, and Pay
By Siobhan Cummins, Managing Director, EMEA for ORC Worldwide. This article was published in the spring 2010 issue of International HR Adviser (formerly Expatriate Adviser). It is reprinted with permission.
The pace of change has accelerated dramatically in recent years, producing significant alterations in the business environment. This situation has had an impact on the way companies design and manage their international assignment programmes.
Emerging as a trend amongst global companies is the use of a range of diverse assignment types to balance the operational and strategic needs of the business and the personal needs of the expatriate family. Adding complexity to the job of global mobility professionals is the variety of home-host locations they may have to juggle as companies seek new markets for their products and services. More often, these places are in less-developed markets, which can be challenging as host destinations due to the prevalence of harsh or difficult living conditions. Along with these factors is the steady evolution of pay packages.
This article will explore some of the latest trends that are currently challenging global mobility managers, and are likely to do so for the foreseeable future.
Assignment Parameters: Timing and Need
The most common assignment pattern continues to be a one-time out-and-back relocation with planned repatriation, according to 66 percent of the participants in ORC’s 2008 Worldwide Survey of International Assignment Policies and Practices. Only 8 percent of the respondents send employees abroad on a series of assignments (international cadre), and 4 percent assign employees to a permanent career abroad.
For the traditional one-time assignment, the average length (excluding short-term assignments) is up to three years, as reported by 44 percent. Other respondents stated the following:
- Up to five years (31 percent)
- Up to two years (17 percent)
- Up to one year (4 percent)
- Indefinite (3 percent)
- More than five years (2 percent)
Japan offers an interesting regional perspective. Japanese firms prefer to send employees on assignments for longer periods, as evidenced by the 61 percent that use assignments lasting up to five years.
ORC’s data shows that companies are reducing the length of assignments and managing the process better by introducing a more robust approval process and reducing exceptions to policy. In addition, companies are endeavoring to improve talent management and repatriation for assignees to avoid assignments that extend indefinitely.
Over time, there has been a steady trend towards the use of short-term assignments (typically three to 12 months). In fact, the use of short-term assignments is increasing among nearly half (46.8 percent) of the multinational participants in ORC Worldwide’s 2009 Survey of Short-term International Assignment Policies. Even for the traditional longer-term assignment, the general movement has been toward shorter periods.
Adding difficulty to the changing environment, talent and leadership are becoming even scarcer resources. This scarcity has resulted from the changes in the business arena and the expectation of employees, as well as the impact of shifting demographics that reveal an aging population and families having fewer children. Increasingly, people have become a company’s most valuable asset, thereby closely interlinking the fortunes and success of a business and its people.
To achieve that success, the company sends employees abroad for typical reasons (management development, training/early career, technology transfer, and others) with the two most frequent objectives being the need to fill a specific skill gap (34 percent) and place the assignee in a senior management role (28 percent). If countries with emerging economies cannot find a workforce with skills in sufficient depth and quantity to meet economic needs, they must bring them in from outside, thereby continuing the demand for an expatriate population. However, as businesses expand into new markets, they face increasingly complex HR environments, particularly as they try to recruit and retain foreign talent and integrate diverse cultures.
Regional Gains and Losses
To that end, assignment destinations have been changing to reflect a number of worldwide political and economic trends, such as:
- The opening up of China
- The collapse of Russia’s Communist era and the emergence of new eastern European markets
- An increase in Asia Pacific markets (e.g., Vietnam, Thailand)
- The explosion of technology markets and resources in India
- A relative change in the importance of emerging European markets compared with more mature European markets
- The ease (and cost savings) of staffing operations in Europe with local nationals or commuter assignees
- The rise in the popularity of the Middle East
- Emerging African markets
Chart 1, “A Look at Expatriate Destinations: 2000 vs. 2008,” reflects the regional change in ranking from 2000 to 2008, reported by survey participants. As expected, the most gains appear to be in the Middle East and Asia Pacific.
| Country/Region of Origin | #1 Destination | #2 Destination | #3 Destination | #4 Destination |
|---|---|---|---|---|
| 2000 | ||||
| USA | West Europe | Asia Pacific | Latin America | East Europe |
| Canada | USA | West Europe | Asia Pacific | Latin America |
| Africa | West Europe | Africa | USA | Middle East |
| Asia Pacific | USA | Asia Pacific | West Europe | China |
| Japan | USA | Asia Pacific | West Europe | China |
| China | USA | West Europe | Asia Pacific | Middle East |
| Australia/New Zealand | West Europe | Asia Pacific | USA | Middle East |
| Latin America | Latin America | USA | West Europe | Canada |
| Middle East | West Europe | USA | Middle East | Africa |
| West Europe | West Europe | USA | Asia Pacific | Latin America |
| East Europe | East Europe | West Europe | USA | Canada |
| Source: ORC’s 2000 Worldwide Survey of International Assignment Policies and Practices | ||||
| Country/Region of Origin | #1 Destination | #2 Destination | #3 Destination | #4 Destination |
| 2008 | ||||
| USA | West Europe | Middle East | Asia Pacific | China |
| Canada | USA | Middle East | West Europe | Asia Pacific |
| Africa | Middle East | Africa | West Europe | USA |
| Asia Pacific | USA | West Europe | Asia Pacific | Middle East |
| Japan | Asia Pacific | China | USA | West Europe |
| China | Africa | Asia Pacific | Middle East | USA |
| Australia/New Zealand | Asia Pacific | West Europe | USA | Middle East |
| Latin America | Latin America | USA | Middle East | West Europe |
| Middle East | Middle East | USA | West Europe | Africa |
| West Europe | West Europe | USA | Asia Pacific | Middle East |
| East Europe | East Europe | West Europe | USA | Asia Pacific |
| Bold indicates a gain in position. Source: ORC’s 2008 Worldwide Survey of International Assignment Policies and Practices |
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Short-term assignment destinations reflect a different trend. According to ORC’s 2009 Survey of Short-Term and Commuter International Assignment Policies, the top five home-host combinations for short-term assignments are:
- Asia Pacific to the United States
- Asia Pacific to Eastern Europe
- Western Europe to Western Europe
- United States to Western Europe
- Western Europe to Asia Pacific
Cost-Effective Changes vs. Expatriate Needs
As world economies undergo ups and downs, companies look for ways to reduce the cost of expatriate assignments, when necessary and appropriate. While some companies have reduced the number of expatriates, this step may not be practical from a business strategy point of view, depending on, for example, the need for specific skills in a particular location. When reducing costs, employers must also address the inevitable risk that cuts in pay packages and perquisites may deter top talent from accepting an assignment when the candidates have concerns about family and spousal issues, career prospects, and safety — especially if they are working in a hardship location.
Family issues, particularly dual-career concerns, are increasingly placing barriers in the way of employee mobility. To address the issue, many companies have introduced spousal assistance policies. According to ORC’s 2008 Dual Careers and International Assignments Survey, 63.1 percent of the respondents have a formal written policy in place; 8.9 percent use an informal policy; and a quarter are considering changes to that policy. However, even with an existing policy, an employer has no control over whether accompanying spouses can continue to work in the assignment location. With the economic downturn, it is clear that many governments are tightening immigration rules; consequently, it is possible that an accompanying spouse may find it more difficult to obtain a work permit.
According to an IRC/Permits Foundation survey[1] on expatriate spouses and partners, almost 90 percent of spouses/partners worked in the home country before the assignment. This number dropped to 35 percent during the assignment. Another key finding reported almost 60 percent of the respondents saying that, in future, they would be unlikely to relocate to a country where it is difficult for a spouse/partner to get a work permit. In the words of one participant:
“Both my partner and I have invested a lot in our education and career, and either one of us can be offered an international job. We would only accept if we were fairly sure that both of us could work. As an absolute minimum, we would need to know that whichever of us is ‘accompanying’ could get a work permit. Then we would trust in our ability to compete for a job.”
So what are employers to do if the supply of qualified candidates decreases? Companies may very well have to provide generous, motivating pay packages to persuade reluctant employees to accept international moves, or explore alternatives to traditional assignments.
Evolving Pay Scenarios
Over the years, there has been a debate about using multiple compensation approaches for different employee groups (regional, rotational, virtual, commuter, permanent, indefinite, early career/development, and others) versus those who have desired consistency across assignee groups. But more and more, companies are tailoring the assignee package to reflect different needs. Having more than one policy can work because (a) different assignment types often require different pay elements and (b) if a policy is designed to meet the general circumstances of a specific group, requests for exceptions to the policy may decrease.
When considering the options for international assignments, other than a traditional three-to-five year assignment, the most common alternatives include:
- Expat “Lite”: In line with the traditional balance sheet approach, an expat “lite” plan follows the overall equalization philosophy, which strives to keep the assignee’s purchasing power comparable to what was experienced at home while on assignment. The difference is evident in lower premiums and smaller allowances.
- Developmental Assignments: Usually involving younger, single candidates sent overseas to further their career, such assignments may have compensation elements that are similar to expat “lite.” For example, they typically exclude allowances for children’s education and spousal assistance.
- Short-Term Assignments: On assignment for 3-to-12 months, the expatriate usually leaves the family at home, so that the employee needs to meet certain financial obligations at home. The company typically provides furnished housing, with full kitchen facilities, at the assignment location, as well as appropriate private transportation.
- Commuters: Some individuals cross national borders on a regular basis, not as business travelers, but as “commuter” expatriates. In general, the employees live in one country, work in another country, make frequent and regular trips to the same work site, and leave the family at home.
An emerging trend in certain markets, particularly Hong Kong, Singapore, China, and the UAE, is the increasing use of local-plus packages. In these locations, personal income tax is frequently lower than in the home country or in the Middle East not applied, and companies tend to give the tax break to the assignee rather than apply tax equalisation. In addition, the expatriate may receive support to pay for housing, education, and transportation. Benefits arrangements vary, particularly in China.
It is clear that the one size fits all policy is gradually being replaced by a “multi-tier” approach. It provides companies with flexibility in managing different types of assignees and compensating them according to seniority or skills level.
The Crystal Ball
While it is impossible to predict future trends, one might guess that developing economies and those countries with sought-after resources (such as oil) will continue to be a destination for expatriates. For example, we are starting to see more foreign investment in Africa; consequently, the number of expatriates there is increasing.
When it comes to compensation, more employers will probably consider implementing multiple pay approaches. While different plans can be effective and cost-efficient, the company’s circumstances, budget, demographics, culture, and management strategy will judge whether a specific compensation approach is the best solution.
What eventually happens will depend on world events, economic shifts, and, above all, a company’s individual business strategy.
