ORC Sightlines

August 2007

Globalization Dictates New Approaches to Job Structures and Assignments

HR professionals who manage international assignment (IA) policies and processes in multinational companies are finding themselves stretched and stressed in ever new ways. As companies seek to expand their reach, set their sights on emerging markets, develop global leaders, and rationalize their multinational operations, international assignments have taken on greater visibility and more complexity. Managing these assignments is no longer just about pay, and IA professionals sometimes struggle to balance mandates from senior management with the needs of expatriates and their families.

The increasing need for global mobility often butts up against decreasing tolerance for the cost of traditional expatriate assignments. ORC consultants at the 31st annual ORC Joint Roundtable noted that companies are accommodating these competing demands by increasing their use of short-term, commuter, and virtual assignments. Meanwhile, assigning employees who live in developing nations to work in more developed locations around the world presents new challenges to traditional expatriate pay approaches. According to Geoffrey Latta, executive vice president, issues such as these, which affect employee mobility, control of direct and indirect costs, and the balance between policy flexibility and consistency are some of the key challenges that will be taxing the creativity of IA managers in the future.

International assignments represent only part of the complex talent management challenges associated with global mobility. ORC Executive Vice President Syd Robertson argued that global companies need to integrate job structures globally. Inconsistencies in job titles and job descriptions typically result in perceived inequity, unclear career paths, and duplicate systems. Organizations need a global language to understand how work is structured and distributed, as well as how each individual job links to the overall business strategy. Robertson advocated creating a corporate-wide infrastructure of benchmarks and levels to which jobs around the world would be matched. Although the market price of jobs will be different in various locations, the global infrastructure provides a common understanding of internal relationships and relative value of positions regardless of where they are within the company or in the world. This makes it easier to move people where they’re most needed and maintain a rational pay philosophy.

Survey Reports Localization Practices in Multinational Companies

While localization (paying foreign nationals assigned to a country the same way local employees are paid) affects only a small percentage of employees on international assignments, it is a strategy many companies are turning to and plan to use with more frequency. Most often applied to employees who have asked to remain in a foreign posting after their assignment was supposed to end, localization is also used by companies to control costs or import hard-to-find skills needed long term. Since employees paid on a local basis normally don’t receive the extra allowances and incentives granted expatriates, localization can save the company money while eliminating inequities between locals and foreign nationals working side by side.

However, the strategy also poses a number of challenges. ORC has compiled information from 285 multinational companies in the 2007 Survey of International Localization Policies and Practices, published last month.

Companies are dealing with many critical issues when localizing employees. The number one concern of survey participants was employee retirement plans, followed by establishing a consistent approach for local compensation packages and balancing management’s need to negotiate terms against the desirability of adhering to a policy.

In fact, only 44 percent of participants had a formal policy on localization, whether it was a single policy for all locations, a single policy for some locations, or multiple policies tailored to individual locations. Just over one-third of participants handle the situation on a case-by-case basis, while 10.5 percent have an informal policy. Even among those with a policy in place, most apply the terms and conditions of the policy on a case-by-case basis.

Companies have three major options when moving salaries and bonuses away from expatriate packages towards local terms:

Base salary is transferred to local terms immediately in nearly half (46%) of participating firms, of which 14 percent provide the employee with a lump-sum payment to help with the transition. Six percent phase the employee to the local level over time, on average about 29 months. Another 6 percent continue the employee at the same salary level. Of course these options are not absolute, and in many cases variations and combinations exist, often resulting from individual negotiations with employees.

The 52-page survey report further details policies and practices concerning compensation, benefits, allowances, housing, education, taxes, and so forth and is available for $300. For more information, contact Samantha Blackhurst, +1 212-852-0308.

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