A Job Overseas Has Moved Off Easy Street
Getting an overseas posting used to be an all-expenses-paid way to the fast track.
But, U.S.-based multinational corporations are cutting back sharply on the perquisites and allowances of their expatriate executives, a noted international consulting authority says.
“They have woken up to the fact that there is often no business value to these lavish allowances,” said Leon Potgieter, a principal with the international consulting office of Towers Perrin in New York.
“Many of the lavish lifestyles associated with expatriate positions don’t exist any more,” added Jim Case, assistant vice president for employer relations at Thunderbird School of International Management in Glendale, Ariz. “They’re taking a red pencil to compensation.”
About 75% of U.S. multinational firms, Potgieter estimated, “are looking at cutting back on lavish overseas allowances.”
Some firms are said to be slashing individual expatriate remuneration by $50,000 to $100,000 or more.
A company having a roster of 100 employees working overseas could save as much as $10 million a year by switching its compensation strategy, according to one estimate, further strengthening its competitive position.
Potgieter termed “illogical” and “senseless” corporate attempts to automatically replicate the stateside lifestyles of Americans transferred overseas, citing practices such as:
* Paying a financial premium for accepting an overseas posting.
* Paying the expatriate to buy a home in a foreign country matching the square footage of the U.S. home.
* Picking up the tab for private schools for dependents.
* Paying all the expatriate’s foreign and domestic taxes.
* Negotiating individual packages for air fares, shipment of furniture, and auto and monthly food allowances abroad.
* Paying to reimburse the expatriate’s cost of hiring a maid.
In a survey of 152 U.S. and Canadian executives, conducted by consultants Foster Higgins in New York, 36% said they believe that their companies spend too much on employees on overseas assignments for the value received.
“Many companies act as though they have to entice executives to take assignments outside the U.S., whereas today these assignments represent some of the most exciting career opportunities in most large corporations--assignments that high-potential, ambitious candidates should covet,” said Frank Kittredge, president of the National Foreign Trade Council, in Washington.
“Expatriate costs are severely bloated by use of a ‘balance-sheet’ compensation model that tries to duplicate the bucolic life of, say, the Atlanta suburbs in the different worlds of Beijing, Buenos Aires or Frankfurt,” an NFTC statement said.
In the “balance-sheet” model, overseas employees neither gain nor lose financially when they go abroad.
One company that has used the balance sheet model since 1969 is Texaco Inc.
“We’ve tried to keep expats earning whatever they’re used to at home, and so far it’s worked great for us,” said assistant media manager Jim Swords.
A more effective compensation strategy, according to NFTC’s Kittredge, is the “destination-based” model that provides a package based on competitive conditions in the new locale yet retains “reasonable safeguards” to protect the expatriate’s financial interest.
This model typically offers higher base pay and incentive awards with lower allowances and tax equalization payments.
According to Towers Perrin’s Potgieter, the “balance sheet” approach often focuses an expatriate’s foreign mission on “capital accumulation” rather than the job that needs to be done.
“People used to getting these allowances became greedy and started to argue for every allowance. The policies were broken down into little parts. They had to negotiate on everything, and they forgot the reason they were there,” Potgieter said.
Now, he said, multinationals are telling executives: “Instead of giving you a house equal to your home in the States, we’re giving you $3,000 a month. And if you still choose to live in 2,000 square feet, that’s your prerogative.”
And instead of covering every moving cost, Potgieter added, “now they’ll pay them $25,000 upfront to cover everything, and it’s their choice whether they fly their family first class or how they get their stuff there.”
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Sherwood Ross is a freelance writer who covers workplace issues for Reuters. If you have experiences to share or suggestions for Executive Travel, please write: Executive Travel Editor, Business Editorial, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053; fax (213) 237-7837 or e-mail to business@latimes.com
