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Building Compensation Structures for Expatriates

 With globalization being the way the world functions today, international businesses from across the world are seeking expatriates to work in different countries, based on their talents and expertise. This increasing demand for expatriates brings with it several factors of concern, chief of which is setting up a proper compensation structure for them.  Businesses often have to ride the thin line between ensuring that the expatriates are paid well and do not leave, while also ensuring that they are not going overboard with their budget. Moreover, it is also important to understand that there are certain innate differences between compensation packages for local nationals and expatriates. This could again be a cause for concern, given that local nationals might resist the high pay given to the expatriates. Despite these concerns and issues, it is important to ensure that you pay right and you pay well, if you want to retain expatriate talent. Here are some of the basic components of compensation structures for expatriates, which should give you an idea about how to build yours to ensure that you attain that balance.

·         Basic salary and bonuses: When building compensation structures for expatriates, the first aspect that you should consider is the basic salary that you will be paying the expatriate. Different companies adopt different approaches to determine what should be the base salary for any particular expatriate post. One such common approach is the home country approach, where the gross salary drawn at home is determined. From this, tax, pension, social security and other contributions are deducted. This is then matched with the host country salary. It is important to take into account the exchange rate, and companies should take steps to protect the expatriate against any losses, which he or she might incur due to the exchange rate issue. Bonuses, on the other hand, are extremely individual aspects of each company. However, most companies offer performance bonus, which is related to the exact nature of the individual’s performance.

·          Allowances: The daily living expenses that any person experiences when at home, and the one he or she experiences when in another country, will be different. Often it is seen that living in another country might be more expensive than living in one's own country. Under these circumstances, it is important to include allowances in the compensation structures for expatriates. These could include housing allowance, cost of living allowance, mobility allowance, education allowance and even hardship allowance, depending on the place of work. These would usually be calculated as being equal in some part or percentage of the base salary. When given in addition to the base salary, these allowances would surely be of value to the expatriate and ensure his retention.

·         Insurance: When traveling away from home, it is important to feel secure about your place of work as well as stay. Under these circumstances, most companies include insurance and other incidental benefits as part of the compensation package for expatriates. This could include medical insurance, disability pension, retirement pensions etc. However, when offering these benefits, it is important to take into consideration their applicability and transferability to the home country of the expatriate.

·         Taxation benefits: Finally, when building compensation structures for expatriates, it is important to take into consideration the taxation aspect of the money received by the expatriate. It is important to find a solution that makes earning the money rewarding in terms of tax payments, which would give them the added incentive to stay.

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