1. EXPAND YOUR HORIZONS Make the Right Connections

2. Show Me the $$$$$ - Global Assignment Cost Projections and Compensation Presenters: L. Sean Raney, GMS VP, International Assignment Compensation Services CARTUS Michele Honomichl CEO Celergo, LLC Roger W. Turner, GMS Global Mobility Lead, HR – Intl. Benefit Design/Mobility Eli Lilly and Company Moderator: Terry Mandle, CRP, GMS Senior Global Mobility Specialist Black & Veatch Corporation

3. Show Me the $$$$$ - Global Assignment Cost Projections and Compensation L. Sean Raney, GMS VP, International Assignment Compensation Services CARTUS

4. Background The economic downturn of 2008-2011 has put increased pressure on companies to proactively manage their expenditures, as well as accruals Depending on which data source one uses, the number of companies that utilize Cost Projections before an international assignment fluctuates between 46-86%* depending on assignment type Between 50-64% track costs during the assignment* Less than 33% compare Actual Costs vs. Estimated Costs* Only 3% report effectively measuring Return on Investment of an international assignment** *2010 PWC IA Policy Survey and 2011 Brookfield IA Survey **2010 Mercer IA Survey

5. Largest Costs of an Assignment Base and Incentive Compensation: 40-50% Taxes: 20-40% Housing: 5-10% Cost of Living/Allowances: 0-5% Physical Cost of Moving: 5-10%

6. Assignment Budgets & Tracking Costs Start with original Cost Projection for the first year budget Best practice recommendation: –Reexamine budget once a year, either anniversary date of assignment or calendar/fiscal year-end when submitting accruals Are original CP assumptions/numbers still valid? Any adjustments needed? –To do this you have to be able to accurately track costs and compare to original CP

7. Tools to Forecast Online Cost Estimate Tools –COLA providers –Technology firms –Big 4 firms –Relocation companies Budget to actual tool Forecast methodologies –Average of each month’s expense –Most recent month’s expense –12-month’s average expense

8. Provide a tool to business units that allows them to see actual spend for all expatriate costs against projected spend (Cost Projection) on a individual basis, year over year through the term of the assignment (including any residual costs in years following the end of the assignment) Enhance the Global Mobility Group’s ability to engage with the business and be viewed as adding value to the process Ensure that the businesses are not “surprised” at year-end or following an assignment with expenses that they were not expected or projected; allows the business to see costs as they are happening on a monthly basis Tracking, Budgeting, Forecasting Project Goals

9. Budget to forecast exercise will allow Company to: –Gain a more comprehensive understanding of costs for all assignment types Better understand cost levers Model potential “changes” in terms of impact on levers –Understand how actual assignment costs are tracking compared with the original Cost Projection Will enable us to better advise the business on budgeting process at the beginning of an assignment (typical variance) Enable us to get to “why” with respect to greatest areas of variance Anticipated Results

10. –Be able to gauge what costs have occurred vs. what are “left” to occur (i.e. better forecasting) Provide more accurate accruals at the time of repatriation –Consult with business about future “spend” on new projects based on past actual experience/cost –Better estimate cost/impact assessment of future policy changes Streamline the billing/charge-out process at the same time Anticipated Results (continued)

11. Show Me the $$$$$ - Global Assignment Cost Projections and Compensation Roger W. Turner, GMS Global Mobility Lead, HR – International Benefit Design/Mobility Eli Lilly and Company

13. Cost projection tool must match planning philosophy –Order of magnitude vs. Detailed score card Are you holding people accountable? Are you treating all int’l assignees the same? Is it meant to be for a general planning tool? –Expense control/management vs. Business control/management We know it’s expensive, but the reason for the assignee may be more important Expense for every assignee will differ, but not that much, the business productivity or controls may be more important than the cost Thoughts on Cost Projections

14. –Return on Investment The real return may not be measurable until well after assignee departs The objective for the assignment must warrant a high cost Thoughts on Cost Projections (continued)

15. International Assignee Payroll The pay sheet/balance sheet can be a simple or a complicated tool –What does the employee need to see? Clarity on benefits and calculation of amounts Changes over time Reference document –What does the business need to see? Detail for tax calculations Detail for home or host payment Useful demographic information Documentation for education purposes

17. Show Me the $$$$$ - Global Assignment Cost Projections and Compensation Michele Honomichl CEO Celergo, LLC

18. What Is A Shadow Payroll? Host Shadow Payroll Home Shadow Payroll

19. What is a Host Shadow Payroll? Calculation of taxes at host location Often referred to as “Shadow Payroll” Typically employer pays this tax on behalf of the employee Typically grossed-up or rolled over

20. Types of Host Tax Programs Employee is on tax equalization and the employer pays the host tax (gross-up needed) Employee is treated like a local, on local payroll and pays host tax (no gross-up needed) Employee is on a home payroll but pays host taxes via a “host tax deduction” on home payroll (no gross-up needed)

21. What is a Home Shadow Payroll? Typically occurs in countries with WW income requirements –United States –Switzerland –South Africa –A Few Others

22. What Is Included In A Home Tax Payroll? Includes: –Full compensation package (regardless where paid) –Benefits in kind –Host taxes Calculates: –Social insurances –US: Medicare, SS, sometimes State & Federal

23. When Do I Need A Shadow Payroll? Long Term Expatriates Local Rules on Foreign Workers Compliance and Filing

24. Long Term Expatriate Most expatriates on long term assignment will need host tax calculations if withholding is required in country Most countries require withholding – some do not (Hong Kong, France, Singapore, etc.) Long-Term is often defined from a tax perspective as greater than 183 days Some countries require calculations at 90 days or less

25. Foreign Workers Host tax payrolls are often required by host locations regardless of time in country May be dependent on visa type May be required to maintain drilling or working permits

26. Compliance Host tax payrolls are often required by host locations May be dependent on visa type May be required to maintain business license Need to calculate to not incur penalties May be audited more regularly

27. Tax Filings of Withholdings Expatriate host taxes payments can be tricky: –Modified Scheme – Expat taxes submitted separately from local taxes under same company tax ID (Example: UK) –One company tax ID: Expat taxes must be submitted with local taxes (Example: Germany) –By Individual: Expat taxes are remitted for each individual (Example: Spain)

28. Shadow Payroll Required Countries

29. What Are Common Expat Payroll Issues and Best Practices?

30. Common Expat Payroll Issues Incomplete data Inaccurate exchange rates Misinterpretation of taxability Lack of expertise Lack of support at the local level

31. Best Practices Consistent and timely compensation accumulation Create tax matrix for each country Update payrolls monthly Review data for integrity Review program annually

32. Show Me the $$$$$ - Global Assignment Cost Projections and Compensation L. Sean Raney, GMS VP, International Assignment Compensation Services CARTUS

33. Why do Compensation Accumulation Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages. Other tax systems may isolate the loss, such that business losses can only be deducted against business tax by carrying forward the loss to later tax years. Social security contributions Many countries provide publicly funded retirement or health care systems. In connection with these systems, the country typically requires employers and/or employees to make compulsory payments. These payments are often computed by reference to wages or earnings from self employment. Tax rates are generally fixed, but a different rate may be imposed on employers than on employees. Some systems provide an upper limit on earnings subject to the tax. A few systems provide that the tax is payable only on wages above a particular amount. Such upper or lower limits may apply for retirement but not health care components of the tax. Taxes on payroll or workforce Unemployment and similar taxes are often imposed on employers based on total payroll. These taxes may be imposed at both the country and sub-country levels.

34. Year-end Reporting Calendar Year-end Reporting Compensation data is reviewed Reasonableness Completeness Reconcile reports to US W-2 Box 1 (Total Income Taxable Wages) Coordinate with the Global Companies Contacts (Payroll, AP, Travel, Benefits, etc.) Missing data Validation of amounts and adjustments Coordinate with the Tax Firm Format of reports sent to Tax Firm annually for their efficient importing of data Posting of reports per Tax Firm schedule

35. Year-end Reporting (continued) Fiscal Year-end Reporting (some IA’s require 2 different report periods) Compensation data is reviewed Reasonableness Completeness Coordinate with the Global Companies Contacts (Payroll, AP, Travel, Benefits, etc.) Missing data Validation of amounts and adjustments Coordinate with the Tax Firm Posting of reports per Tax Firm schedule

36. Key Take-Away Messages Cost Projections Cost Projection tool must meet the business philosophy and objectives The utilization of the tool must be worth the investment of resources to create it Reexamine Cost Projection once a year to see if estimated costs still applicable/ appropriate – update for forecasting/accrual purposes Compensation Sheet/Balance Sheet Should be helpful to the business operations and informative to the employee Shadow Payrolls Determine if you need a shadow payroll (home and/or host) for each location Ensure you include all appropriate costs in your host tax calculations Review your tax policies and practices at least once a year

37. Key Take-Away Messages (continued) Compensation Accumulation Need to collect worldwide compensation for compliance reasons Work with tax provider to make format easier for them to utilize in tax return process, thus saves out of scope costs

38. Questions? THANK YOU!