Compensation of Expatriate Managers

Compensation plans for expatriate managers must be competitive, cost-effective, motivating, fair

and easy to understand, consistent with international financial management, easy to administer,

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and simple to communicate. To be effective, an international compensation program must

1. Provide an incentive to leave the United States

2. Allow for maintaining an American standard of living

3. Facilitate reentry into the United States

4. Provide for the education of children

5. Allow for maintaining relationships with family, friends, and business associates

Expatriate compensation programs used by most U.S.-based international corporations

rest on the balance-sheet approach, a system designed to equalize the purchasing power of

employees at comparable position levels living overseas and in the home country and to provide

incentives to offset qualitative differences between assignment locations. The balance-sheet

approach comprises four elements:

 

1. Base pay, which is made essentially equal to pay of domestic counterparts in comparably

evaluated jobs

2. Differentials, which are given to offset the higher costs of overseas goods, services,

housing, and taxes

3. Incentives, which compensate the person for separation from family,

friends, and domestic support systems, usually 15 percent of base salary

4. Assistance programs, which cover added costs such as moving and storage, automobile,

and education expenses

 

The differentials element is intended to correct for the higher costs of overseas goods and

services so that in relation to their domestic peers expatriates neither gain purchasing power nor

lose it. It involves a myriad of calculations to arrive at a total differential figure. Fortunately,

employers do not have to do extensive research to find comparative data. They typically rely on

data published quarterly by the U.S. Department of State for use in establishing allowances to

compensate American civilian employees for costs and hardships related to assignments abroad.

The costs of utilizing expatriate managers are higher today than ever before. For example,

the employer’s typical first-year expenses of sending one U.S. executive to Great Britain, are

$200,000 above the base salary. Many U.S. corporations are sending fewer managers overseas,

often substituting host-country managers. Others are reducing allowances, benefits, and overseas

pay incentives. An increasing number of corporations employ foreign graduates from U.S.

M.B.A. programs. The many foreign graduate students enrolled in business programs at U.S.

universities are a pool of potential managers who combine the training and enculturation of an

American M.B.A. with their own native background.

 

 

 

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