BUILDING LOCAL PLUS PACKAGES

3 February 2015

Lorraine Jennings Julia RadchenkoMelbourne Singapore

MERCER WEBCAST

© Mercer

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AgendaWhat we’ll cover today

• How are companies using Local Plus, including locally hired foreigners,permanent transfers, and temporary transfers of existing employees?

• For which locations is Local Plus most commonly used?

• How and why do Local Plus packages vary by host location?

• What are the best practices and watch-outs of this approach?

• Questions© Mercer

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Locations surveyed:

• Australia• Brazil• Hong Kong• Mexico• Singapore• Switzerland• United Kingdom• United States

Mercer’s 2014 Local Plus Policies and Practices Surveys

The surveys cover Local Plus policies and practices for:

One-way international transfers

Locally hired foreigners

Localized expatriates

International assignees of a limited long-term duration

Internationally hired foreigners

Companies participated

236

Participation remains open: imercer.com/localplusParticipation remains open: imercer.com/localplus

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Section 1

Local Plus, a growing trend: definition andmarket evidence

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Local PlusDefinition

• A Local Plus remuneration or compensation approach is defined as anapproach whereby:– Companies pay their foreign employees according to the local salary

structure…– …Plus additional compensation elements (such as transportation,

housing, dependents’ education, etc.) not typically provided to localnationals because of the expatriates' home-country ties, unique status,and other factors.

– Relocation and/or immigration assistance provided on top of the localsalary are considered as “Plus”.

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Local PlusHow companies are paying their expats• Most common way today: Balance Sheet

approach = home salary + allowances(employees on limited-duration internationalassignments are paid using the home-basedapproach, enabling similar standard of at hostlocation)

• Rapidly growing trend: Local Plus approach =local salary + benefits not provided to localnational employees

But Local Pluspackages are

seeingeven more

growth

Balance Sheetexpat packages

are growing

35%

19%16%

14%

7%9%

No

Yes, a general trend for our int'l assignments

Yes, for certain types of assignments (e.g., trainees, developmental)

No, but we are seriously thinking about this option

Yes, but only for intra-regional assignments

Other

Q: Are you using Local Plus as an alternativeto traditional expatriate packages?

Source: Mercer 2013 Alternative International Assignments Policies and Practices Survey

© Mercer

Local PlusPopular Local Plus host locations

USA39%

China38%

Singapore32%

UK26%

Hong Kong18%

Switzerland10%

Source: Mercer 2013 Alternative International Assignments Policies and Practices Survey6

Australia12%

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Local Plus: Asia-PacificDo you offer local plus terms and conditions to foreign employees?

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Internationally HiredForeigner

Source: Mercer 2014 Local Plus Surveys

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Local PlusKey drivers

Source: Mercer 2013 Alternative International Assignments Policies and Practices Survey

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Section 2

Local Plus package components overview

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Base SalaryHow to determine it?

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Pure local

Inflatedlocal forforeigners

local forreturnees

Whichtype oflocal? Tax

difference

Purchasingpowerdifference

Housingcostsdifference

Net-to-Gross

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Compensation ApproachHow do you establish the base salary for a foreigner on a Local Plusapproach? Examples: Hong Kong & Singapore

One-wayInternational

Transfer

Internationally hiredforeigners

Locally hiredforeigners

Localizedexpatriates

Int’l assignee ona limited durationlong-termassignment

SG HK SG HK SG HK SG HK SG HKN=35 N=17 N=37 N=17 N=23 N=16 N=32 N=8 N=24 N=13

Based on local paystructure withoutadjustment

51% 41% 43% 41% 57% 44% 41% 38% 21% 23%

Based on local paystructure withadjustments

20% 41% 30% 41% 26% 31% 25% 25% 21% 8%

Home salaryconverted in hostcurrency

9% 6% 5% 6% 4% 6% 9% 25% 17% 38%

Case by case 20% 6% 19% 12% 13% 19% 19% 13% 37% 31%

It varies -- -- 3% -- -- -- 6% -- 4% --

• Based on a calculation to protect/equalize/compare with employee's previous (i.e., home or hiring country) net pay• Based on a higher local compensation percentile than locals would get

Source: Mercer 2014 Local Plus Surveys

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Prevalence Provision of “Plus” ElementsSummary of benefits

Plus Elements Australia Hong Kong Singapore

HousingUtilitiesDependents’ educationTransportationMedical benefitPension planCOLA/Goods and ServicesMobility premiumHardship premiumImmigration assistanceTax and social security assistanceHome leave supportRelocation assistanceAll-Inclusive allowanceLanguage training

Common Less common / limited Never or rarely provided

Source: Mercer 2014 Local Plus Surveys

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Prevalence Provision of “Plus” ElementsFocus on select elements

Tax and social securityassistance

Relocation assistance

Immigration assistance

One-time payments

Dependents’ educationHousing

Medical benefitTransportation

Ongoing payments(with phase-out option)

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HousingSummary

21%

29%

25%

25%

13%

27%

12%

38%

19%

12%

24%

18%

18%

6%

47%

Yes, same for all

It depends on assignment type

It depends on position level

Case by case

No, housing benefit is not provided

Australia (N=17)Hong Kong (N=26)Singapore (N=56)

Do you include a housing benefit with Local Plus packages for foreign employees?

Prevalent practices:

- More than half provide ahousing benefit

- Typically housing is provided ascash allowance

- While some employers’allowances are lower than a fullexpat package, some don’tdifferentiate

- Position levels is used as adifferentiator (rather than familysize)

- In the majority of cases, theemployee bears the tax

Source: Mercer 2014 Local Plus Surveys

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Dependents’ EducationSummary

Do you include a dependents’ education benefit in your Local Plus packages for foreign employees?

13%

4%

9%

29%

46%

15%

23%

35%

19%

23%

18%

12%

18%

53%

Yes, same for all

It depends on assignment type

It depends on position level

Case by case

No, we do not cover dependent education

Australia (N=17)Hong Kong (N=26)Singapore (N=56)

Prevalent practices:

- In SG, majority provide it as abenefit-in-kind; in HK as aseparate cash allowance

- Reduced benefit compared toa full expatriate (exceptionHK, where typically follows fullexpatriate practice)

- Covers kindergarten, primary,and secondary school

- Majority limited to tuition andregistration fees

- No limit on number of children

Source: Mercer 2014 Local Plus Surveys

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TransportationSummary

5%

4%

34%

11%

50%

27%

23%

50%

12%

12%

12%

18%

53%

Yes, same for all

It depends on assignment type

It depends on position level

Case by case

No, we do not cover transportation

Australia (N=17)Hong Kong (N=26)Singapore (N=56)

Prevalent practices:

- Half do not provide the benefit- Most provide separate cash

allowance- Driven by business need and

position level, similar to‘locals’.

Source: Mercer 2014 Local Plus Surveys

Do you include a transportation benefit with Local Plus packages for foreign employees?

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Medical BenefitSummary

Do you include any contribution toward a medical benefit with Local Plus packages for foreignemployees?

70%

11%

2%

5%

14%

58%

12%

4%

4%

23%

41%

29%

6%

6%

18%

Yes, same for all

It depends on assignment type

It depends on position level

Case by case

No, we do not cover medical benefitAustralia (N=17)Hong Kong (N=26)Singapore (N=56)

Prevalent practice:

Majority provide same levelof benefit as to locals

Source: Mercer 2014 Local Plus Surveys

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Component How is it different from fullexpats?

Phase-out schedule Fixed schedule

• Practices vary. Decrease of 10-70% of the housing budget vs fullexpatriate provision

• Full allowance for the first 6-12months only

• ‘Less expensive’ category ofhousing

• Individual negotiation, case bycase

• Typically phases out overtime

Examples of phase-out:• 3 years: 100%, 50%, 25%• 5 years: 1-3 yrs 100%, 4th

-60%, 5th – 30% and 6th yr– 0%

• Over 3 years, reduced by33%

• Over 5 years, by 20%

Examples of fixed / definedperiod of time:• 2 years• 3 years• 5 years

• Some can be subject toextension

• Subject to criticality of therole

• Practices vary between matchingfull expatriate benefit and adecreased benefit

• In HK, majority follow the fullexpatriate entitlement

• Mixed practices – phase-out over time OR paid asongoing benefit

Examples of phase-out:• 3 years: 100%, 50%, 25%

Examples of fixed / definedperiod of time:• Case by case• 2-3 years• Maximum of 5 years• Until the child has finished

education

18Source: Mercer 2014 Local Plus Surveys

Prevalence Provision of “Plus” ElementsManaging transition to pure local status

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Component How is it different from fullexpats?

Phase-out schedule Fixed schedule

• Follows same terms as for localemployees, which is typicallybased on business need andseniority level.

• Entitlements reviewedperiodically

• Typically continuous and notphased out

• Not applicable

• Typical practice follows sameterms as for local employees

• Those who provide a differentbenefit, provide an internationalhealth plan

• Not typical practice to phaseout the medical benefit

• However, policies arereviewed from time to timeand adjusted accordingly

• Less prevalent practice toreduce based on fixedschedule, applicable in caseof providing enhanced orinternational health plan

19Source: Mercer 2014 Local Plus Surveys

Prevalence Provision of “Plus” ElementsManaging transition to pure local status

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Case Study: Singapore to Shanghai, ChinaMid-level Manager (IPE 55*), couple + 1 child

-CNY 200,000

CNY 0

CNY 200,000

CNY 400,000

CNY 600,000

CNY 800,000

CNY 1,000,000

CNY 1,200,000

CNY 1,400,000

CNY 1,600,000

Home Local Net-to-Gross(Plus)

Local Plus

Education

Housing Allowance

Taxes

Social Security

COLA

Host Housing norm

Home Housing Norm

Net Salary

International Position Evaluation. Source: Mercer Total Remuneration Survey

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Section 3

Implementing Local Plus policies

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Host net income

Hom

ene

tinc

ome

Low High

High

CAUTION: Local salarywill need to be adjusted

upwards significantlyRelativeparity

CAUTION: Expectrepatriation difficulties

Relativeparity

Designing a Local Plus Policy: Food for ThoughtRelative home/host parity – may need to proceed with caution

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Local Plus: by exception only

Local Plus: on a case by casebasis

Local Plus used for mostassignees

Local Plus only approach used

Local Plus for specificcategories

Designing a Local Plus PolicyHow far do you want to go?

Addressing specific issues;Taking advantage of local

circumstances

Mix of approaches: BalanceSheet / Local Plus

Segmentation by type ofassignment

© Mercer

Designing a Local Plus PolicyConsiderations

• One global consistent policy

• Global principles and local flexibility

• Understanding the economic impact of a Local Plus policy

• Buy-out with temporary “plus” elements

• As local as possible – limited “plus” elements

• Policy inclusions: Authorisation, cost analysis, compensation approach,benefits, visa/work permits, health insurance, tax, financial planning, etc.

• Need for a decision tree for business leaders

• What other documentation is required?

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Mobility and Survey Resources on iMercer.com

§ Comprehensive mobility resources:imercer.com/mobility

§ Mercer’s location-specific Local PlusSurveys: imercer.com/localplus

§ Mercer’s Alternative InternationalAssignments Policies and PracticesSurvey: imercer.com/aia

§ Localized Compensation:imercer.com/localize

§ Mercer’s Total RemunerationSurveys: imercer.com/trs

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Lorraine JenningsMelbourne

Lorraine.Jennings@mercer.com

Julia RadchenkoSingapore

Julia.Radchenko@mercer.com© Mercer