Companies must offer good incentives

Companies must consider offering a range of attractive benefits to prompt highly skilled staff to take a move to the Middle East or Africa, writes Alan Hosking

HR directors are agreed that sending employees on expat assignments from an industrialised country to a developing country can be a double-edged sword. There is a high cost to the company for two reasons. The first is that it is usually highly skilled people who are selected for expat assignments, as companies must minimise the risk of failure. The second is that to encourage highly skilled people to accept the assignment, there has to be a strong incentive for them to forego the convenience of a comfortable life in their home country.

Remuneration and benefits for expats working in Africa and the Middle East are determined by the need to provide sufficient incentive for the assignee to accept the position, industry standards, location, the company’s size, the expat’s skills and experience, and competition for the job.

Large corporations are well placed to provide packages that include a generous salary and allowances, enabling expats and their families to enjoy a lifestyle equal to or slightly better than that in their home country.

To prompt a senior person to accept an expat assignment in Africa or the Middle East, companies must be prepared to offer very attractive expat benefit packages. To begin with, companies usually do everything to secure the necessary work and residence visas and permits and also cover the costs for them. The cost of visas for dependents (which may need to be renewed annually) are usually also covered.

Research has indicated that 80 per cent of foreign assignments are terminated because the spouse was unhappy. It is therefore very much in an employer’s interests to provide support for the spouse in order to lower the risk of the assignment being terminated prematurely. Employers should determine what work, educational and social opportunities, leisure and other facilities and associations are available for spouses. Where a spouse is giving up a career to accompany their expat partner, it may be worthwhile for companies to provide allowances for spouses to continue with studies and so forth.

The happiness of children is another critical factor to the success of an assignment. Many companies therefore pay for schooling in order that expat children can receive the best possible education. This is an expensive component of a benefits package, costing in the region of £10,000 (approximately $14,000) per year for an International School. There is also the cost of books, meals, transport and other equipment.

Taxes and pensions are also important. While some countries in the Middle East allow for tax-free salaries, local taxes may have to be paid. Companies should establish what the tax laws in the assignment country are, in order to make provision if necessary and to inform the expat if their salary and benefits will be affected by local tax.

Companies also have the option of offering a guaranteed annual bonus, a "contract completion" bonus, a performance bonus or an incentive bonus. These can range from half a month’s pay to a month’s pay or substantially more.

Removal and shipping costs must also be considered. This benefit ranges from a company paying only for an excess baggage allowance to unlimited expenses for shipping the expat’s personal belongings to their new home. A container load for this purpose can cost in excess of £5,000.

Housing or a housing allowance is usually provided, and houses are usually styled according to western standards, air conditioned and fully furnished. Utility bills may be paid by the company, which often also attends to maintenance and upkeep. Some companies will assist employees with purchasing a property so they can build equity. Smaller companies may provide an allowance and leave the expat to find their own accommodation.

Expats also expect flight benefits. The minimum benefit is a flight to and from the country at the start and end of a year with no flights for dependents. Some companies pay for free round trips for expats and all dependents when they take holidays. More senior employees may receive one to three free round trips per year or more.

Transport or a transport allowance is usually offered. Generally, only senior and sales positions offer a car. Typical transport allowances are not enough to purchase or rent a car, but help to subsidise the expense.

Positions should offer medical care, which can range from full cover including prescriptions and basic dental care with no deductibles or co-payments of any kind, to cover which involves co-payments and excludes dental treatment.

As for holidays, most expat positions offer 30 days’ paid holiday, with certain single status positions offering 40 days. Holiday benefits can vary according to the status of the employee, whether they are single, married or have children. Covering the cost of moving the expat’s family pets is also an option employers must consider.

In places where personal security and safety could be a problem, companies normally cover the expenses incurred to provide adequate security measures. This is not normally regarded as part of a benefits package.

Financial security is important to expats, so life insurance cover can be provided, as well as the option of offshore banking facilities in order to deposit earnings, portions of earnings or bonuses. Another benefit is the provision of an entertainment allowance.

An important aspect of retention is an incentive benefit linked to the performance of the company. Mark Bussin of Johannesburg-based 21st Century Business and Pay Solutions says the primary motivating factor of incentive schemes is the enhancing of the company’s bottom line results and personal motivation. They are therefore linked to individual performance and value creation in the company.

In the light of the range of benefits available to expats, companies should take into account the value of the assignee to the organisation, the importance of the assignment to the company’s success and the value creation potential of the assignment, then structure a salary and benefits package which works for employer and employee.

Retaining talent on assignment is very important. For this reason, Middle East expatriates are highly rewarded, earning some of the highest and most valuable salary packages in the world. Their counterparts in Africa are not far behind.

With regard to local pay, two features are starting to influence the pay of locals in comparison with their expat counterparts. Global pay is becoming a reality, which means global pay for scarce skill is very relevant. With this, however, also comes the global measurement of success.

Global pay must, however, be seen against the backdrop of a trend towards the "localisation" of expat packages. This is a process where expat benefits are scaled down after a number of years (between four and six) as the employee becomes accustomed to living in their host country.

The thinking is that initially expats in a foreign country purchase and consume products which are largely available in their country of origin, resulting in a much higher cost of living. Over time, employees are now expected to adjust their lifestyles to fit in more closely with that of their host country.

This means that, instead of locals being paid a premium to be on a par with expat colleagues, expats are having their packages adjusted to fit in with local remuneration trends.

Further legal information

www.21century.co.za

www.ditnet/itnews/ecommerce.html

www.lesliecorp.com/taxes.html

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