1. Employees Benefits Expatriate Compensation
SESSION 6 - Employees Benefits

2. Reward System Reward System Expatriate Compensation
Job Analysis
Benefits
Job Description
Managing Base
Pay
Jpb Evaluation
Working
conditions
Variable Pay
Long-term
Incentives
Expatriate Compensation
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Recognition
Awards
Recruitment
Selection & Hiring
Training & Dev’mt
Career planning
Perf. evaluation
HR Planning

3. Workers’ compensation
Definition
Employee benefits are that part of the total compensation package, other than pay for the time worked, provided to employees in whole or part by employer
e.g.
Life insurance
Pension
Workers’ compensation
Working hours
Vacation
Holidays
. . .
Expatriate Compensation
SESSION 6 - Employees Benefits

4. Changes in Benefit Costs over Time
From 1955 to 1975
Benefit costs rose at a rate almost 4 times greater than employee wages or the consumer price index
From 1963 to 1987
The rate of growth had slowed to 2 times greater than employee wages
From 1993 to 1999
Cost of benefits has stabilized
Expatriate Compensation
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5. The Benefits Picture Today
Most full-time employees in the Western World receive benefits.
Virtually all employers offer some health insurance coverage.
Benefits are a major expense (about one-third of wages and salaries) for employers. Could go up to two-third in some countries.
Expatriate Compensation
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6. Benefit Costs Perspective
Even though the cost of benefits is rising more slowly, some serious issues at the horizon
Health care costs alone are raising more than 6-8 times the rate of general inflation in the US and EU
Pension financed with companies stocks in deep trouble with the declining stock market
Growing rate of retirees
Expatriate Compensation
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7. Annual Health Care Cost Increases (US figures)
Expatriate Compensation
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Source: Eric Parmenter, “Controlling Health-Care Costs,” Compensation and Benefits Review, September/ October 2002, p. 44
Figure 13–1

8. Why the Growth in Employee Benefits ?
The Unions played a strong role after 2nd World War
Some strong unions such as Metal or Steelworkers have set a number of benefits due to little freedom to raise wages during the War
Pension plans
Supplementary unemployment compensation
Extended vacation plans
The Employers
Many of the benefits in existence today were provided at employer initiative
Longer working hours triggered health as well as motivation issues
Management was genuinely concerned for their welfare
Employer had a major play in the social environment
Human capital (labor) was crucial for the main industries until the computer age (1980)
Expatriate Compensation
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9. Why the Growth in Employee Benefits ?
Government in most countries has played an important role in the growth of employee benefits
Mandatory plans mostly found in western world:
Social Security Coverage
Workers’ Compensation
Unemployment Insurances
Expatriate Compensation
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10. Cost Effectiveness of Benefits
Most employee benefits are not taxable
Provision of a benefit in lieu of pay increase avoids (or at least defer) taxes for both the employee and the employer
Due to governmental endless debts, more an more threats of taxing a number of benefits
Group based benefits
Can be obtained at lower rate
Easy qualification standards
Expatriate Compensation
SESSION 6 - Employees Benefits

11. Benefit Administration Issues
Four major administration issues in setting up a benefit package
Who should be protected?
How much choice should employees have among an array of benefits?
How should benefits be financed?
Are your benefits legally defensible?
Expatriate Compensation
SESSION 6 - Employees Benefits

12. Who should be protected?
What probationary periods should be used for various types of benefits?
Which dependents of active employees should be covered?
Should retirees (as well as spouses and perhaps other dependents) be covered?
Should survivors or deceased employees (and/or retirees) be covered? If so, for which benefits?
What coverage, if any, should be extended to disable employees?
What coverage, if any, during layoffs, leaves of absence, strikes, and so forth?
Should coverage be limited to full-time employees?
Expatriate Compensation
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13. Choice Flexibility Cafeteria style or flexible benefit plan
Employees permitted great flexibility in choosing the benefit options of greatest value to them
Even companies that are not considering a flexible benefit program are offering greater flexibility and choice, e.g.
Optional levels of group term life insurance
Availability of death or disability benefits under pension or profit-sharing plans
Choices of covering dependents under group medical expense coverage
Expatriate Compensation
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14. Administering the Benefits Program
Expatriate Compensation
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15. Flexible Benefits: How Does it Work?
Employer: Your Benefits package is worth £25’000
Employee: Some of it is fixed
Employer: The rest is flexible -how would you like it spent?
Employee: Like this
Employer: OK
25k
25k
14K
25k
11k
Expatriate Compensation
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16. Flexible Benefit Programs
Advantages
Employees choose package that best satisfy their unique needs
Flexible benefits help firms meet the changing needs of a changing work force
Increased involvement of employees and families improves understanding of benefits
Flexible plans make introduction of new benefits less costly
Cost containment: Organization sets spending ceiling; employee chooses within that constraint
Expatriate Compensation
SESSION 6 - Employees Benefits

17. Flexible Benefit Programs
Disadvantages
Employees make bad choice and find themselves not covered for predictable emergencies
Young employees might undervalue the need for a decent retirement plan and neglect contributions to such plan
Adverse selection: Employees pick only benefits they will use; the subsequent high-benefits utilization increases its cost
Expatriate Compensation
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18. How should benefits be financed?
Alternatives include :
Non-contributory (employer pays total costs)
Contributory (costs are shared between employer and employee)
Employee financed (employee pays total costs for some benefits - by law the organization must bear the cost for certain benefits)
Usually benefit options are contributory
With the cost of benefits rising considerably, employers are increasingly turning to ways for cutting their costs
Expatriate Compensation
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19. Are your benefits legally defensible?
Benefits have to comply with hundreds of complex sections of the tax code and other “devils”.
Because there are so many rules and regulations, benefits have to be administrated through a benefit administrator who is often a certified actuary
Expatriate Compensation
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20. Attraction, Retention, & Motivation
Employee benefits are widely claimed to help in the retention of workers as benefits increase with years of service.
Equally, the amount of vacation time increases with years of service.
Decrease of employee satisfaction over the last 20 years especially regarding disability, life and health insurance.
Why: employers shifting costs to employees or reducing coverage to stabilize expenses
Increase perception of a company’s caring attitude
When: introducing day care, elder care, on-site fitness centers,weight loss program, health program (alcohol and drug treatment programs for employees), etc…
Expatriate Compensation
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21. Cost Containment Most prevalent practices include: Probationary period
Excluding new employees from benefit coverage during probation period
Benefit limitations
Limit disability income payments to a maximum % of income and to limit medical/dental coverage to s certain fixed amount
Copay
Requiring that employees pay a fixed or percentage amount for coverage
Administrative cost containment
Controlling costs through policies such as seeking competitive bids for program delivery
Expatriate Compensation
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22. Cost Containment Terminology
Expatriate Compensation
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23. US Private-Sector Employer Compensation Costs, June 2003
Expatriate Compensation
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Source: “Total Employer Costs Rose to in Second Quarter,” BNA Bulletin to Management, September 11, 2003, p. 293

24. Types of Employee Benefits
Pay for time not worked
Vacations, holidays, unemployment insurance, sick leave, parental leave, severance pay, Supplemental unemployment benefits (lay-offs)
Insurance benefits
Workers compensation, Hospitalization, health, and disability insurance, HMOs, PPOs, mental health, COBRA, life insurance, part-time worker benefits, pregnancy benefits
Retirement benefits
Social Security, Medicare, 401(k), Employee stock ownership plans,
Services
Credit unions, Employee assistance programs
Expatriate Compensation
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25. Other Benefits On-site or subsidized child care Elder care
Fitness and medical facilities
Food services
Flexible work scheduling
Telecommuting
Educational subsidies
Sabbaticals
Loan programs for home office equipment
Concierge services
Trauma counseling
Expatriate Compensation
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26. Pension Plan What is a Pension Plan
An arrangement between an employer and employee for the payment of post- employment income, hereafter called pension benefits
Expatriate Compensation
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27. Types of Pensions Plans
Defined Benefit Plans
Specifies the benefit workers will get at retirement
Employer contributes annually an amount into a trust fund
Guaranteed annuity or lump sum upon retirement
Defined Contribution Plans
Specifies the employer’s contribution
Cannot predetermine the employee’s actual pension benefit
Contributions are invested and projected benefits are offered
Expatriate Compensation
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28. Types of Pensions Plans
Defined Benefit Plans
Employer provides a specific pension level defined in terms of
Fixed dollar amount or
Percentage-of-earnings amount that may vary with years of seniority
Employer finances this obligation by
Following an actuarially determined benefits formula and
Making current payments that will yield the future pension benefit for a retiring employee
Determination of benefit levels
Average earnings at end of tenure (last 3-5 years) or
Average career earnings or
Fixed dollar amount not dependent on earnings benefits are offered
Expatriate Compensation
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29. Types of Pensions Plans
Defined Contribution Plans
Benefit is defined as the future value of pension fund contributions made on an employee’s behalf
Exact value is unknown prior to retirement ;
depends on future earnings of fund investments
Benefits are solely a function of accumulated contributions;
therefore, the term defined contribution
Value of benefits is variable, dependent on contribution levels and earnings made on invested contributions
Example in the US: 401 (k) plan
Expatriate Compensation
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30. Pension Alternatives Defined Benefit Plan
Provides an explicit benefit which is easily communicated
Company absorbs risk associated with changes in inflation and interest rates which affect costs
More favorable to long-service employees
Employer costs unknown
Defined Contribution Plan
Unknown benefit level is difficult to communicate
Employees assume these risks
More favorable to short-term employees
Employer costs known up front
Expatriate Compensation
SESSION 6 - Employees Benefits

31. Pension: Demographic Evolution
When Bismarck invented the state pension, with a retirement age of 65, average life expectancy was only 45.
Now, in the OECD, life expectancy is 76 and rising--yet state pensions can still be claimed at 65 or even less.
Expatriate Compensation
SESSION 6 - Employees Benefits

32. Trends Affecting Retirement
The number of people age 65 and older tripled to about 34 million between 1940 and 1995.
According to U.S. census projections, people age 65 and older are expected to number 80 million by 2050.
In 1960, 45.4 percent of male workers over age 65 were still in the labor force; in 1990, only 27.4 percent were still working.While the labor force participation rates of women between ages 55 and 64 have been rising, further increases are not expected.
Eight baby boomers turn 50 every ten minutes.
The U.S. net national savings rate was relatively stable at about 7 percent of GDP from 1951 to It has collapsed since 1980, most recently dropping to less than 1 percent of GDP. Although to a lesser extent in Europe, the trend still affect EU countries.
In 1940, a 65-year-old had a normal life expectancy of 12.7 more years. Currently, it is about 17 more years.
Expatriate Compensation
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33. Value of Employee Benefits
Expect benefits as part of their total compensation
Do not understand true value of benefits
Often undervalue their benefits
Often take benefits for granted
Often cannot list all benefits received
Have preferences regarding types of benefits they want
Expatriate Compensation
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34. Creating a Relationship Organization
Why would a talented person want to work and stay here?
Great Company
Great Job
Great
Manager
Expatriate Compensation
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Great Comp
& Ben
Sources: McKinsey: The War for Talent
& Gallup: First Break All The Rules
Your Employment Brand

35. Expatriate Management
Expatriate Compensation
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36. Definition: Expatriates=
Third Country National
(TCN)
International Mobile Employee
(IME)
A citizen of one country living
and working in another country
Expatriate Compensation
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37. Definition: Repatriation
Repatriation is the term given to the return of the home country manager
Reasons for repatriation:
The time of the overseas assignment is up
Children’s education
Unhappy with the assignment
Family unhappiness
Failure
Expatriate Compensation
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38. Expatriate Types Traditional Expatriate: Technological Transfer:
Maintain control of host country operations by having home country manager
Technological Transfer:
Introduce new technology/practices from home country to host country
Career Relocation:
have high potential employee gain global experience
Country Startup:
Establish presence in host country while maintaining home country organization culture, processes, approaches, competitive advantage
Expatriate Compensation
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39. Traditional Expatriate
Long term:
3 years -permanent
Employee career stage:
Middle
Need for family relocation:
Standard and costly
Need to accommodate spouse career continuation:
Need for extensive acculturation:
Standard, required for entire family
Mentoring and reintegration critical
Most paid under a balance sheet approach
Expatriate Compensation
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40. Technological Transfer
Short term -
6 months or so
Examples: New HRIS, New production technique, New service approach
Employee career stage:
Any
Need for family relocation:
None
Need to accommodate spouse career continuation:
Need for extensive acculturation:
Expatriate Compensation
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41. Technological Transfer (continued)
Need for extensive acculturation
None
Maintain home country salary and benefits
Add bonus for extra efforts
Put up in hotel, service apartment
Provide cost of living allowance
Provide emergency health coverage
Provide one or more trips for family and/or employee
Expatriate Compensation
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42. Career Relocation Middle term: 2 to 3 years
Purpose: have high potential employee gain global experience
Examples: International finance, Manufacturer with offshore production, Global service provider
Employee career stage:
Early
Need for family relocation:
If married, but usually no school age children
Need to accommodate spouse career continuation:
Mixed
Need for extensive acculturation:
Some, but younger, less settled employees more adventurous
Balance sheet approach, but less costly because of life stage:
Salary, Tax equalization,
Housing allowance,
Frequent trips to home country offices
Mentoring, reintegration plans critical for these employees
Expatriate Compensation
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43. Country Startup Long term: 3-5 years Purpose: Major goal:
Establish presence in host country while maintaining home country organization culture, processes, approaches, competitive advantage
Major goal:
Find and develop host country national to take over as GM Examples: GM of new manufacturing facility, GM of new hotel
Employee career stage:
Late (maybe last assignment)
Need for family relocation:
Limited-usually empty-nesters, spouse takes retirement
Need to accommodate spouse career continuation:
Mixed
Need for extensive acculturation:
Yes, but little need for mentoring, reintegration
Balance sheet approach, but less costly because of life stage:
Salary, Tax equalization, Benefits, Housing allowance.
Expatriate Compensation
SESSION 6 - Employees Benefits

44. Critical Factors in Expatriate Selection
ACCEPTING FOREIGN ASSIGNMENTS
DISCUSSIONS WITH SPOUSE/FAMILY SIGNIFICANT OTHERS
CONSIDERATIONS OF PERSONAL/FAMILY RESPONSIBILITIES/OBLIGATIONS
PLANNING FOR CARE OF DEPENDANTS
CONSIDERING IMPACTS OF JOBS ON PROFESSIONAL DEVELOPMENT AND CARREER PROGRESSIONS
LEARNING ABOUT CULTURAL DIFFERENCES BEFORE GOIN ABROAD.
Expatriate Compensation
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45. Critical Factors in Expatriate Selection (Cont’d)
SPOUSE AND FAMILY SUPPORT
PROVIDING SUPPORT TO FAMILY & RECEIVING SUPPORT FROM FAMILY
WILLINGNESS TO MAKE SACRIFICES FOR FAMILY MEMBERS
ATTENTIVENESS TO NEEDS OF FAMILY MEMBERS
KNOWLEDGE OF FOREIGN LANGUAGE
ABILITY TO UNDERSTAND AND COMMUNICATE ORALLY IN THE FOREIGN
Expatriate Compensation
SESSION 6 - Employees Benefits

46. Critical Factors in Expatriate Selection (Cont’d)
ADJUSTMENT TO LIVING ABROAD
SENSITIVITY AND ACCEPTANCE OF CULTURAL DIFFERENCES
ACCEPTANCE OF DIFFENENT MORES (VALUES, BEHAVIORS,ATTITUDES)
INVOLVING IN HOST COMMUNITY
COPING WITH DIFFERENT/ DIFFICULT CIRCUMSTANCES
LOCATING RESOURCES (HOUSING. FOOD ETC) IN FOREIGN COUNTRIES
Expatriate Compensation
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47. Critical Factors in Expatriate Selection (Cont’d)
ADJUSTMENT TO FOREIGN BUSINESS PRACTICES
KNOWLEDGE OF FOREIGN BUSINESS PRACTICES
SENSITIVITY TO APPROPRIATE BUSINESS PROTOCOL/PRACTICES
ESTABLISHING/MAINTAINING BUSINESS CONTACTS
MAINTAIN RAPPORT WITH CONTACTS, CLIENTS AND CO-WORKERS BEING OPEN AND HONEST IN DEALING WITH OTHERS
Expatriate Compensation
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48. Overall Quality of Living - Ranking
Expatriate Compensation
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49. BIG MAC Index Expatriate Compensation SESSION 6 - Employees Benefits

50. Sources : MERCER Sources : UBS Expatriate Compensation
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51. COL Index http://www.bestplaces.net/col/ Expatriate Compensation
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52. Salary Comparison Expatriate Compensation
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53. Why International Assignments Fail
Career blockage
Cultural shock
Lack of pre-departure cross-cultural training
Overemphasis on technical qualifications
Getting rid of a troublesome employee
Family problems
Expatriate Compensation
SESSION 6 - Employees Benefits

54. Upon Return Loss of Status Poor Planning for Return Position
Reverse Culture Shock
Lack of Respect for Acquired Skills
Expatriate Compensation
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55. Advantages of Using Expatriates
Cultural similarity with parent company ensures transfer of business practices
Closer control /coordination of international subsidiaries
Employees get multinational orientation
Creates pool of internationally experienced executives
Local talent may not yet add value
Expatriate Compensation
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56. Disadvantages of Using Expatriates
Creates problems of adaptability to foreign environment and culture
Increases “foreignness” of subsidiary
Involve high transfer, salary and added costs
May result in personal and family problems
May lower moral and motivation of local management
Subject to local government restrictions
Expatriate Compensation
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57. Trend based on Company Nationalities
Expatriate Compensation
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58. Built-up Method - + - + = = + - + = X = Home Country Host Country
Annual Base Salary
Annual Base Salary -
Benefits +
Benefits -
Income Tax +
Income Tax =
Net Income =
Net Income
Expatriate Compensation
SESSION 6 - Employees Benefits +
Housing
contribution -
Housing
contribution +
Expatriate
Allowance =
Spendable
Income X
COLA
Adjustment =
Spendable
Income

59. Expatriate Compensation Model - Definition
SESSION 6 - Employees Benefits