Jun 9 2015
For first-time expats, an offer to work internationally presents many questions that are often difficult to answer. How does one know if the offer is attractive? What is the cost of living in the host country? What benefits can one expect? A salary offer of $20,000 USD per month may seem rather tempting but not if one is going to live in Luanda, Angola, where rent alone can easily cost that amount. This article will give a basic overview about expat executive compensation packages and outline what to expect from them.
Expat packages come in many variations. What is included in any package will depend on a number of factors. An offer for an overseas post will likely depend on the responsibilities and level of the position, the company proposing the relocation and of course the geographic location.
For simplicity, expat packages fall into three basic categories: 1) Full Expat package, 2) Expat Lite and 3) Local Hire. The Full Expat package is available to employees with highly specialized skills in their field and will often include many benefits ensuring a comfortable life in most any country. An Expat Lite package will consist of a subset of benefits offered under the Full Expat package. The Local Hire offers no benefits other than what a local national employee in the host country would receive. An expat can define these benefits through direct negotiations. Companies want the employee to be happy and productive in the host country and will often try their best to help with the adjustment.
The Full Expat Package
The Full Expat Package is typically limited to C-level management. The offer may include some or all of the below benefits.
Relocation expenses are fully covered. Relocation will consist of all activities necessary for the initial move to the host country. This begins with visas, flights, hotels, work and residence permits and a one-time lump sum to cover any out of pocket expenses. The movement of household goods will likely consist of a limited amount of airfreight and a shipment of a land/sea container of 20 to 40 feet. All customs and taxes covered. These expats also receive temporary housing in the host country for 30 to 90 days until long-term housing is available. This also allows time for the shipping container to arrive and clear customs. In the instance of a short-term assignments consisting of a few months or a year, one can expect household goods (and automobiles) to be placed in storage in the home country.
Typically, upon arrival in the host country, a local agent will assist with the relocation. Agents can be extremely helpful providing orientation to the new city and country. The agent will help identify schools for children, find long-term housing, shopping and transportation options. They will often point out the cultural pitfalls experienced by new arrivals. Relocation assistance will help with the many tasks often overlooked during relocation, such as establishing new bank accounts, activating utilities and identifying local doctors, dentists and hospitals.
The hiring company will cover all fees associated with work and alien residence permits for the employee and family. The company will also address all host country government regulations. Note that most countries are inflexible regarding work and residence permits. The activity to acquire all necessary host country permits should be complete before arrival.
Even though any or all relocation costs are covered, this does not mean the company will manage or coordinate the move. One should expect to coordinate his or her move to ensure smooth relocation.
Expat executives usually earn a housing allowance as an annual, quarterly or monthly sum. The allowance is adjusted to the cost of housing in a good, safe area in the work city of the host country. Depending on the expat package, housing may include basic utilities and domestic help. In countries where security can be an issue, the home should be fitted with alarms and 24/7 security response or 24/7 on-site security guards/dogs for personal and family safety. Electric generators, inverters and water storage and purification systems may also be included depending on the infrastructure available in the country.
For education allowance (in countries where private schools are the only viable education), expat executives are given a maximum value per child up to a certain age, typically 18. As with all allowances, any amount exceeding the maximum will be an out of pocket expense for the employee. Most expats use this for international boarding schools in the home country or their country of choice.
Automobile allowance may include options such as a company-leased automobile or a monthly sum allowing the expat to purchase a car locally. The monthly allowance may include a stipend to cover insurance, a local driver and a gas card to cover fuel costs.
The package will pay expenses for travel costs to the home country on a recurring basis of once or twice per year. Typically, this includes the cost return flights to the home county and city of origin for the entire family. Most packages allow the total flight value to broken down allowing children in international boarding schools to travel to the host country or the entire family to travel elsewhere for holidays.
A hardship allowance is available for relocations to developing countries and is sometimes available for relocations to developed countries.
The majority of host countries require expats to pay income tax on all earnings. Depending on the country and laws, tax assistance and equalization is a welcome benefit; the host country’s tax forms can be complicated, not to mention in a foreign language. For Americans who are required to report and pay taxes in both their home and host country, this benefit can be particularly attractive as the new rules for reporting foreign income and bank accounts is cumbersome. Another benefit expats are given is tax equalization. This will reimburse the expat for any taxes paid in the host country that are greater than what the executive has to pay in their home country.
Additional expat benefits could include language courses and club access. Expats can take foreign language classes to integrate more smoothly into the new location and work environment. While less common, one might also find the expat package includes the cost of membership to a local golf club, yacht club, gym, etc. – and include subscriptions to magazines, newspapers and trade journals of choice. Standard benefits such as bonuses, annual leave, medical leave and insurance should always be available. One item to note is evacuation coverage. If you are moving to a remote part of the world where healthcare is limited, your health plan should cover evacuation costs to the nearest country with adequate medical facilities.
At the end of the foreign assignment, expect repatriation to the home country. This will include all moving expenses and typically a lump-sum value to cover any out of pocket expenses.
The Expat Lite package will be a subset of the benefits offered under the Full Expat package. Relocation will likely include coordination of the work and residence permits and basic moving expenses with 30 days temporary lodging. Again, depending on the length of the assignment, storage of household goods in the home country may be available. Before accepting the assignment, expats must negotiate any other relocation benefits they desire.
Allowances will also be less generous. A housing allowance is often included and education may or may not be included. This package typically offers lower financial compensation than a Full Expat package.
If you are in a position to negotiate the terms of your relocation, you can request some or the entire full expat package above.
A local hire does not qualify for any of the above benefits. A local hire gets precisely what a local national would receive in the host country. The individual will pay all expenses to the host country all housing costs and arrange for their own work and residence permits. There probably will not be a work contract or health coverage unless here is a national health insurance plan. These are often positions for young adults teaching a foreign language in the host country – not usually executive-level positions.
As a local hire it is important is to ensure the work and residence permits are properly completed. Some countries have severe penalties, including jail for foreign nationals caught working without a permit.
There is one final and often overlooked item to note for any enthusiastic first-time expat. What will happen to the expat’s current position when he or she takes a new overseas role? If the employee accepts a medium to long-term assignment overseas, the company will have to refill the expat’s original position. At the end of the overseas assignment, the returning expat may find himself or herself without a job in very company that sent them overseas. Of course, expats should discuss this with their employer before accepting any overseas positions and make sure any terms agreed upon are included in the expat compensation package.
The Ultimate Executive Career Guide: Compensation Negotiation
As a senior-level executive, you can use this guide to: