Companies Juggle Cost Cutting with Maintaining Competitive Benefits for International Assignments
Jan 24, 2019
The numbers of expatriates are increasing despite the global recession; however, companies have placed various cost-cutting constraints on international assignments while maintaining competitive packages, according to a new report issued by Mercer.
Mercer’s International Assignments Survey 2010, which collects data from more than 220 multinational firms across all industries, found that organizations globally now have more structured international assignment programs that put emphasis on shortened assignments, hiring locally, and eliminating non-essential benefits in an effort to manage costs more effectively.
Cost Cutting Measures
Despite the economic downturn, international assignments overall have increased by 4% over the last two years. To help control costs, companies are focusing on short-term assignments and, thus, these assignments have been increasing more quickly than the traditional long-term assignments. According to Mercer’s findings, 50% of companies reported a rise in short-term assignments which are becoming more aligned with organizations’ objectives due to their quick approval process. As a result, two-thirds of companies globally have developed special policies for short-term assignments.
Mercer Consultant Geoff Latta said, “Organizations are saving costs, but only to the extent that suitable internationally mobile employees can be attracted and retained. While it is still challenging to find the right candidates for assignments, the economic environment and higher jobless figures have widened the candidate pool. Many applicants are willing to move to countries less affected by the crisis than their own.”
Moreover, companies are trimming costs by hiring expatriates locally instead of paying for expensive moves from the home location. According to Mercer’s research, approximately 50% of companies have increased or plan to increase the number of expatriates hired locally.
Mercer Consultant Rebecca Powers explained, “We have not seen much evidence of companies moving away from expatriate assignments; rather, organizations whose future depends on overseas markets are assessing how they can make better use of these to support their global business objectives. With less cash in the system, there is more interest in making wise investments based on the value of each individual assignment.”
International Assignment Challenges
More than ever before, companies are torn between cost containment and addressing pressing business needs. According to Mercer’s research, approximately the same proportion of companies identify costs (60%) and the difficulty of finding suitable candidates (58%) as the main obstacles for international assignments. Concerns differ slightly according to region. In the Americas, the biggest deterrent is cost, while in Europe and Asia it is the lack of suitable candidates.
Moreover, while business expansion is still a chief reason for sending employees on international assignments, other factors like knowledge and business performance are becoming more important. More than two-thirds (68%) of companies report that the key driver for sending employees on assignments is lack of available local expertise, while 59% say it is improving the performance of an operation and 56% say it is due to launching a new business.
“As a result of the economic climate, many companies have had to postpone planned foreign investments and are focusing on their existing overseas operations,” said Powers. “What we’re seeing is a growing proportion of international assignments where employees are placed in locations that lack the local technical expertise.”
Given the financial and administrative costs associated with international assignments, most organizations are reviewing their global expatriate policies. Nearly nine out of 10 organizations worldwide have been revising or are planning to revise their expatriate policy that includes benefits and allowances in order to save expenditure.
Among all regions, benefits (housing, education and home leave) along with expatriate allowances and premiums (cost-of-living allowance and mobility/quality-of-living premiums) are the leading elements of mobility policies under review.
Additionally, organizations are introducing “light” contracts, applying stringent governance procedures, creating a closer link between assignment and talent management, simplifying processes, and ensuring effective communication among expatriates and the organization.
According to Latta, “Organizations are revising their mobility policies not only to control costs, but to provide consistency in their fast-growing markets where disparities may have emerged in their corporate policies. There is also a growing trend to accommodate the needs of different sections of the employee population, such as Generation X, and this has led to an increase in single-status assignments especially in shorter-term projects.”
According to Mercer’s research, over one half (56%) of companies send married employees without their families on long-term assignments. European companies lead the trend in this type of single-status assignment with two-thirds (66%) sending married employees on assignments alone.
Other Key Findings
The study also revealed the following changes:
? Compensation approach: Overall, companies report few changes in their compensation approach. Some are implementing a host country local approach to save costs, but finding candidates to move can be difficult with such a policy. Furthermore, with the increase of destinations in low-paying countries, the host approach cannot be applied consistently. These constraints can contribute to the need for more differentiation in policies, by length but also by type of assignment.
? Housing: Companies in North America typically provide a housing allowance with a required employee contribution and provide assistance toward employees’ housing in the home country. In other regions, companies provide free housing but employees must pay housing costs in the home country. In line with other cost-containment measures, companies are paying closer attention to the maximum budget for housing benefits and possible double payments of utilities under the cost-of-living and housing allowance.
? Security measures: More than one-third of companies have international assignees located in high-risk regions of the world and there is an increased awareness of risk among companies sending their employees to these areas. Nearly two-thirds of companies—up from a half two years ago—have a formal evacuation plan in case a situation becomes critical in high-risk locations.
? Commuter assignments: Commuter assignments are becoming more popular in Europe and North America, with an increase from 28% to 45% in the former and from 30% to 35% in the latter. Due to the distance traveled in Latin American companies, commuter assignments are not a common practice.
? Home leave: Nearly all companies continue to provide home leave to their international assignees, either in the form of travel fare to the home location or a budget. Except for North America, where 46% of companies pay for some expenses during home leave, companies typically do not cover any of their assignees’ expenses.
Mercer is a leading global provider of consulting, outsourcing and investment services. For more information, visit www.mercer.com.