2014

White Paper
Assignees from Less
Developed Countries

ISSUES AND CHALLENGES

by Michael Joyce

The World’s Trusted Source for Workforce Globalization

Assignees from Less
Introduction

Developed Countries by Michael Joyce

ISSUES AND CHALLENGES

In the 1970s, an expatriate assignment was
perceived in many quarters as a get rich quick
scheme, not just by the assignees themselves but
also by the people challenged with the task of
putting together a package that would be attractive
enough for a candidate to accept.
There was little formal benchmarking in those
days, talent management was an unknown concept,
and in some organizations “expatriate programs”
consisted of ad hoc negotiated deals. Often, the
employees going on assignment were the most
senior or key-decision makers in an organisation.
An international assignment was not widely
viewed as a wonderful career opportunity, so it’s
no surprise that compensation packages were
generous.
The international assignment world has changed
dramatically over the past forty years, starting
with the terminology itself. Employees who were
once known as expatriates evolved to become
international assignees and are now the globally
mobile. In the field as a whole, decades of change
have culminated in a whole industry of people,
teams, and vendors working to manage an
increasingly complex set of relationships.
The most striking change of all, however, has been
in the profile of the assignee. No longer do US or
Western European outbound assignees corner the
market. Those international transfers still exist, of
course, and they will continue to do so, but they
are joined by a vast array of talented individuals
from a complex matrix of home and host country
combinations.
Increasingly, organisations seeking new
sources of talent are expanding their search
into areas of the world previously untapped
for global recruitment.
Assignments taking place within the developed
world are, in essence, relatively straightforward to
administer, even though tax compliance and im-
migration rules have become more complex. The
home-based balance sheet is still the predominant
method used to pay people, and it still works well.
It is a viable method of paying assignees moving
between countries that are economically similar, as
well as from developed countries to less developed
countries (LDCs), since in that case the assignee’s
home purchasing power is maintained.

ASSIGNEES FROM LESS DEVELOPED COUNTRIES 2

2
 Introduction
Increasingly, though, organisations seeking new
sources of talent are expanding their search into
areas of the world previously untapped for global
recruitment. Because of this trend we are seeing
more moves from the developing world into
developed countries, a pattern that presents special
compensation challenges.
Before we examine some of these challenges, we
must first ask: what is a less developed or develop-
ing country?
Low and Middle Income economies are referred to
as “developing economies.” In general, developing
countries have a low per capita GDP, low general
standards of living, and low income levels for a
majority of the population. These countries are
typically located within Africa, Latin America,
parts of the Middle East, the former Soviet Union,
and Asia Pacific.
The main issue in relation to employees from “less
developed” home countries is the disparity between
base pay levels in the home and host locations. Pay
disparity does not equal cost of living disparity,
and organisations that maintain a home-based
approach and then pay a traditional cost-of-living
allowance (COLA) often find that the package is
still unattractive to the LDC assignee. The new
salary may also fail to meet the required threshold
for immigration or local wage legislation.
The World Bank classifies countries into income
groupings based on Gross National Income (GNI)
per capita:
ASSIGNEES FROM LESS DEVELOPED COUNTRIES
The issue comes up most often for employees at
the lower end of the salary scale. Further compli-
cating the picture, a recent Hay Group analysis
indicates “that pay levels at the higher levels have
shifted substantially, from being significantly lower
in emerging markets than the mature markets, to
being on a par – or even higher.”
The main issue in relation to employees from
“less developed” home countries is the disparity
between base pay levels in the home and host
locations.
This trend tends to confine the pay disparity
problem to mid or lower level assignments. If the
home-based balance sheet approach is used for this
type of LDC assignee, the home-based net pay can
often be less than what the assignee could reason-
ably be expected to live on in the new host location,
and less than a same or lower-graded peer could
receive according to the local host location pay
scale.
There are various approaches an organisation may
take to minimise the difficulties, each of which
involves its own set of trade-offs. Let’s examine
each of these approaches in turn.
US $12,616 OR MORE
UPPER MIDDLE INCOME
US $4,085 -$12,615
LOW MIDDLE INCOME
US $1,036 - $4,085
HIGH INCOME
US $1,036 OR LESS
LOW INCOME
3
 Place the LDC Assignee on the Host Payroll

1. Place the LDC Assignee

on the Host Payroll
The assignee can be slotted into the local grading structure and

US $12,616 OR MORE
will usually be provided with a housing allowance on top of the UPPER MIDDLE INCOME
basic salary, resulting in an attractive local plus arrangement. This US $4,085 -$12,615
LOW MIDDLE INCOME

type of package tends to be willingly accepted by LDC assignees,

US $1,036 - $4,085

as the compensation is far in excess of what they were receiving HIGH INCOME
US $1,036 OR LESS

at home.
LOW INCOME

However, what happens at the end of the assignment? Attempting

to repatriate the assignee to the LDC home country pay scale can be
1. CALCULATE HOME-BASE C & S SPENDING
a challenge, since reintegration typically
2. DETERMINE PEER results
SPENDING ON C &in
S a vastly reduced
3. COMPARE (1) AND (2); IF (2) IS HIGHER, PAY
pay package. As a resultDIFFERENCE
of the assignment, theALLOWANCE
AS SUPPLEMENTAL assignee has “lost” the
home reference salary and links to home benefits. Equally, placing
an LDC assignee on a global or headquarters pay scale can prove
attractive at the outset, but it may be difficult to extract the assignee
from such an arrangement at the end of the assignment. Unless such
employees are offered new assignments elsewhere, they often leave the
organisation, taking all their newfound knowledge with them.

£ 60,000

£ 50,000

£ 40,000

£ 30,000

£ 20,000

£ 10,000

£0
ADMIN PROFESSIONAL MIDDLE TOP
SUPPORT MANAGEMENT MANAGEMENT

ASSIGNEES FROM LESS DEVELOPED COUNTRIES 4

UK HOME PEER SPENDABLE INCOME
£ 60,000
INDIA TO UK HOST SPENDABLE INCOME
 Maintain the home Balance Sheet Approach

2. Maintain the Home Balance Sheet Approach

with “Net Salary” Safety Net
The balance sheet approach involves offering
some form of temporary allowances on top of US $12,616 OR MORE
the basic package, usually housing, cost-of-
INTERNATIONAL COMPENSATION WORKSHEET
UPPER MIDDLE INCOME

living allowance (COLA). If the home salary

US $4,085 -$12,615

plus COLA does not provide an acceptable HOME LOCATION: Standard City, India
LOW MIDDLE INCOME
US $1,036 - $4,085

HOST LOCATION: Atlanta GA, United States

HIGH INCOME

living standard in the host country then one EMPLOYEE ID: Mr Sample
US $1,036 OR LESS

solution is for a “position” allowance to be FAMILY SIZE: Differentials = 4 Taxes = 4

RATE OF EXCHANGE (ROE): 1 INR = 0.01634 USD
LOW INCOME

calculated by comparing the home salary plus

the COLA less a housing norm with the net All amounts are annual USD INR
package of a host peer. The “gap” is then paid
as a position allowance for the period of the BASE SALARY 850,000
•Home Location Hypothetical Tax (166,890)
assignment. Once the assignment ends, the •Host Location Housing and Utilities Provided
(117,346)
allowance ceases and the assignee maintains •Home Location Housing Norm Deduction
•Goods and Services Differential (Index = 185.1) 341,898
his or her current home salary.
TOTAL HOST LOCATION NET 14,831 907,662
This approach is not without complexity.
PEER SALARY IN USA 110,000
To make use of it, an organisation needs
Peer US taxes and Social Security (20,375)
robust peer income and exchange rate Peer US Housing Cost (18,041)
Peer Net USD Amount 71,584
information, both level and over time. For
a large assignee population, an organisation DIFFERENCE IN USD
71,584 - USD 14,831 = USD 56,753
would need a systems approach to calculating, PAID AS A POSITION ALLOWANCE
communicating, and delivering the allowance.

£ 60,000

£ 50,000

£ 40,000

£ 30,000

£ 20,000

£ 10,000

£0
ADMIN PROFESSIONAL MIDDLE TOP
SUPPORT MANAGEMENT MANAGEMENT

ASSIGNEES FROM LESS DEVELOPED COUNTRIES 5

UK HOME PEER SPENDABLE INCOME 5
INDIA TO UK HOST SPENDABLE INCOME
 Define a Minimum Host Peer Spendable Income Level

3. Define a Minimum Host Peer Spendable

Income Level CONCEPT OF MINIMUM C&S STANDARD
This approach utilises the balance sheet approach
US $12,616 OR MORE
(SAFETY NET)
UPPER MIDDLE INCOME

US $12,616 OR MORE
but sets an assignee’s spendable income threshold
US $4,085 -$12,615
LOW MIDDLE INCOME

(not net salary) to that of a respective host

US $1,036 - $4,085

UPPER MIDDLE INCOME

HIGH INCOME

SUPPLEMENTAL

US $4,085 -$12,615
country peer. This threshold will result in an uplift ALLOWANCE
US $1,036 OR LESS

LOW MIDDLE INCOME

US $1,036 - $4,085
for the assignee and will provide an “adequate”
LOW INCOME

HIGH INCOME
spendable income, which is not always as costly as
US $1,036 OR LESS

providing an equivalent salary net. Alternatively, a PEER SPENDING

LOW INCOME

C&S
ON COMMODITIES
common host spendable may be offered, so that all ALLOWANCE
AND SERVICES
assignees from less developed countries are treated
equally using the same spendable methodology,
HOME
ensuring equality among this peer group. This SPENDABLE
approach, however, can be administratively
1. CALCULATE HOME-BASE C & S SPENDING
complex. 2. DETERMINE PEER SPENDING ON C & S
3. COMPARE (1) AND (2); IF (2) IS HIGHER, PAY
DIFFERENCE AS SUPPLEMENTAL ALLOWANCE

SPENDABLE INCOME COMPARISON:

£ 60,000 LIMITATIONS OF BALANCE SHEET APPROACH
£ 50,000
It is only at the higher salary levels that the base
£ 40,000 pay + COLA provides a package that is equal to or
above the level of a host peer (using the host peer
£ 30,000
home spendable as a guide). For this reason, the
£ 20,000 £ 60,000 host peer home spendable is sometimes used by
organisations as a minimum bar.
£ 10,000 £ 50,000

£0 £ 40,000
ADMIN PROFESSIONAL MIDDLE TOP
SUPPORT MANAGEMENT MANAGEMENT
£ 30,000

£ 20,000
UK HOME PEER SPENDABLE INCOME
£ 10,000
INDIA TO UK HOST SPENDABLE INCOME
INDIA HOME SPENDABLE £INCOME
0
ADMIN PROFESSIONAL MIDDLE TOP
SUPPORT MANAGEMENT MANAGEMENT

ASSIGNEES FROM LESS DEVELOPED COUNTRIES 6

UK HOME PEER SPENDABLE INCOME
INDIA TO UK HOST SPENDABLE INCOME
 Assignees from Less
Developed Countries
ISSUES AND CHALLENGES

Conclusion
All of these solutions involve trade-offs, but they also all allow assignees to be
adequately compensated, whilst maintaining a clear distinction between the
“gap allowance” element of the package and the base compensation. Factors
such as demographics, industry, culture and resources will often dictate the
preferred approach.

As with any aspect of expatriate compensation, there is no single right answer

to the question of LDC assignee pay. The key to minimising problems is to
choose an approach that fits the organisation and its context, and through
effective communication ensure that the assignee is clear on which parts of the
package are core and which will be removed at the end of the assignment.

For global mobility professionals it is vital that each new case is approached
with the end in mind. In today’s global market, talent is recruited from all
corners of the world, and failure to implement a robust compensation approach
to capture varying demographics can eventually result in repatriation or
retention problems that could have otherwise been avoided.

TOP
MANAGEMENT

COME
The World’s Trusted Source for Workforce Globalization
BLE INCOME
E INCOME

Michael Joyce
Senior Manager, Client Solutions
mjoyce@air-inc.com
+44 (0)203 514 8654

ASSIGNEES FROM LESS DEVELOPED COUNTRIES 7