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
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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
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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
Julia RadchenkoSingapore
[email protected]© Mercer