International assignments: the party's over
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KEY POINTS |
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Historically, foreign assignments have meant fabulous lifestyles, lucrative packages and a not-too-demanding regime of work for the people who undertake them. In recent years, however, many companies have been reappraising their approaches to sending people on international assignments, and now favour shorter trips, local labour market equalisation of remuneration and the development of local talent.
In Europe, these changes in particular are taking place at a time when globalisation and the strengthening of the single market are stimulating inter-company, cross-border movement of professional and managerial staff.
Research soon to be published by Richard Pearson, director of the Institute for Employment Studies, reveals that in the UK, 40% of people who apply for work permits are inter-company transfers. Pearson says that international mobility within companies is now driven as much by individuals as their employer. There is a growing expectation that, over and above the setting up of new businesses, successful completion of a project, or client work, international assignments can help with career development and the retention of people who are culturally aware.
Pearson says there are obvious benefits to moving people around. It helps people think internationally, he says. The acid test is whether the next role of the repatriated employee takes account of the skills developed and international experience gained.
IRS invited a panel of experts to describe changing approaches to placing staff on international assignments. Our panel comprises:
Sally Binns, HR manager, Watson Wyatt consultants;
Jonathan Exten-Wright, partner at DLA, an employment law firm;
Peter Garfield, HR controller, Johnson Matthey chemicals company;
Pam Peters, international assignments adviser; Watson Wyatt;
John Swabey, head of Watson Wyatt's Brussels-based consulting team for central and eastern Europe; and
Alan Wild, director of human resources development, International Labour Organisation.
People thinking of embarking on international assignments often have high expectations of what their employer will provide before, during and after a project comes to an end. Some major considerations include:
not paying any more tax than already paid in UK;
a guaranteed job on return;
salary on assignment adjusted in line with cost-of-living index;
a bonus as an incentive to move;
receipt of a hardship premium;
maintaining membership and payments into an existing pension scheme;
allowances for accommodation, transport, medical cover and school fees; and
pre-departure assimilation training.
Moving to local ownership
John Swabey leads a team of Brussels-based Watson Wyatt consultants who work with clients in central and eastern Europe. He says that the topic of employing and managing people on international assignments is important for companies operating in eastern Europe. Until a few years ago, most senior managers working for western owned companies would be expatriates. But within the next three years, most companies expect the majority of their expatriates to be replaced by local people.
Irrespective of region or country, Swabey believes there are important commercial reasons for the local management of businesses. He says that developing local people puts business in tune with local markets, and that face-to-face work with clients requires well-established local networks, which expatriates find difficult to establish and maintain. However, he explains that stark differences remain between operations that have been started from scratch by western multinationals or local entrepreneurs, and large, previously state-owned companies.
Swabey says traditional expatriate employment is being eclipsed by the trend to encourage local talent. "It doesn't just apply to the new democracies or the other developing countries and it has nothing to do with Europe," he says. "All over the world, every chief executive with any vision at all is looking to cut long-term international assignments." However, he explains that expatriates are useful because they normally have skills to transfer at a senior level, for example in finance or marketing, where they can inject the latest know-how and train up their replacement and leave within a couple of years.
Regulatory minefield
Most human resource experts say that overcoming the many differences in the design of pension provision in different jurisdictions is the most difficult part of designing a benefits package for someone on an international assignment.
Jonathan Exten-Wright is a partner in the employment department at the law firm DLA. He explains that because employer-provided pensions are invariably designed around the social security system of the country in question, there is an enormous range of variety in the type of provision encountered even just within EU countries.
Depending on the circumstances in which an employee is moved to work in another country, he may have a right to remain in the "home" social security system for up to a year, and - exceptionally - for a second year. However, because of the lack of harmonisation of tax systems, very rarely is it practicable for individuals to be retained in their employer's "home" pension scheme while they are transferred to work abroad.
While Exten-Wright recognises that harmonisation of social security provision in Europe is still a pipe dream, he looks forward to the adoption of the EU's draft Pension Directive before the end of 2002 which will finally allow multinational employers to create cross border pension structures and will force the pace of harmonisation of tax treatment of such arrangements, at least as it affects employees.
The trend of companies closing final-salary schemes and offering money purchase arrangements is also an issue. According to Paul Kelly, worldwide partner at Mercer Human Resource Consulting, the number of multinationals offering a final-salary pension for expatriates has almost halved over the past 10 years1.
Posted workers
A major concern for trade unions and a number of EU member states has been the prospect of "social dumping", where workers from a low-wage economy, Portugal for example, are transferred to a high-wage one, such as Germany, on Portuguese terms and conditions of employment, therefore undermining German conditions.
The EU Posted Workers Directive aims to ensure that workers temporarily posted by their employer from one member state of the European Union to another, should have at least the same basic terms and conditions of employment, including pay, as workers who are habitually employed in that other member state (see summary). But the Directive does not attempt to regulate dismissals or occupational pensions.
Contractual terms
Exten-Wright says that deciding on contractual terms for someone embarking on an international assignment is often complicated. As most of his clients are UK multinationals, most of the problems he deals with are related to English law. He says that in the event of a dispute, attempts are often made to argue that only English law applies, but not always successfully. This is because the national laws of other countries will often be framed in a way that influences or even overrides English law. For example, an EU member state is entitled to operate "mandatory rules" designed to safeguard employee rights. So if a UK contract boldly recites English law, it may be subject to other rules which apply from country to country. Another major issue is deciding what national court has jurisdiction in the case of an employment dispute between an expatriate, resident in one country, and their employer, based in another.
Exten-Wright says he was initially optimistic that the establishment of the European Company Statute (see summary), would enable companies to establish uniform contracts of employment, at least for senior executives, across the EU. Under the statute, companies can be incorporated throughout the EU without the need to re-register in each jurisdiction, which is seen as highly administratively convenient. Initially, he says, some viewed this as a possible vehicle for companies to establish Europe-wide contracts. Unfortunately, the statute does not overcome tax and pensions differences between member states, but does demand high-level employee representation, an unpalatable prospect for many UK companies.
1.The Financial Times, 20 April 2002.
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The Directive says workers temporarily posted by their employer from one member state of the EU, where the employer is established, to another, where it is providing services, should have at least the same basic terms and conditions of employment as workers who are habitually employed in that other member state. The posted workers' employer, which must guarantee them those terms and conditions of employment, must be a main or subcontractor or a temporary employment business or agency, or else it must belong to the same group that owns the establishment or business to which the workers are seconded. The guaranteed terms and conditions of employment are the host country's applicable statutory minimum wage, maximum hours of work and minimum rest breaks; minimum paid annual holidays; conditions of hiring out temporary workers; minimum standards of health, safety and hygiene at work; protection for working pregnant women, new mothers and young people under the age of 18; and prohibition of discrimination on grounds of sex, and others, in employment. So the posted workers' employer may vary, suspend or terminate their contracts of employment, and that they are entitled to be represented and consulted, in accordance with the laws of the member state in which the employer is established. Posted workers may, if they wish, enforce their right to be guaranteed terms and conditions of employment by bringing legal proceedings against their employer in the member state to which they are, or were, posted. Member states had until 16 December 1999 to implement the Directive, and to make information on the guaranteed terms and conditions of employment generally available. Source: Industrial Relations Law Bulletin 632. |
Case study: Watson Wyatt
Organisation: Watson Wyatt
Number of employees:
2,000 within European region
Locations: significant presence
in 38 countries
Number
of staff on international assignments: 90-100within Europe
Watson Wyatt is a global professional services firm focused on human capital and financial management. It specialises in four areas: employee benefits, human capital strategies, eHR, insurance and financial services.
Like most large consulting firms, Watson Wyatt's professional staff are highly mobile. International assignments normally fall into one of three categories - business trips up to six months, short-term assignments from six months to two years and long-term assignments of over two years. The firm is moving towards shorter-term assignments, attracting less expensive expatriate packages, wherever possible.
Sally Binns, HR manager, explains some of the changes in the way successful companies and their staff view international assignments. "Long gone are the days when people regarded an international assignment as a cushy number with a fantastic package for a couple of years," she says. "Now it is purely a commercial decision around opening an office, working with clients and delivering projects. However, we recognise that the personal and professional development of staff takes place within this framework."
Pam Peters, Watson Wyatt's adviser on international assignments, says that in recent years considerably more clients want to work with associates who have a strong international focus. She emphasises the need for the firm to recruit people with hands-on experience of working in different countries and cultural awareness of different social and business norms.
The message Peters is keen to get across is that international assignments are very much driven by business need coupled with the development of the employees. She adds that assignments are not driven by budgets, and compensation packages are fair.
Peters says that in recent years there has been a marked increase in cross-border movement of professional staff within European offices. She says that as a consequence the firm is formulating commuter assignments within the eurozone where associates will commute between their home base and their office location on a weekly basis.
If the UK eventually joins the euro, Peters believes that more UK nationals will participate in this type of international commuter assignment.
Watson Wyatt has no difficulty in finding people to undertake international assignments. Binns says that graduates are offered the prospect of international work as an integral part of their career with the firm. Language training is both provided and encouraged generally throughout the organisation, and intensive pre-assignment briefings are standard practice.
Binns says that the health, safety and security of staff on international assignments are taken seriously. All international assignees have premium health and medical packages. Security matters are dealt with through an external provider.
Binns predicts continuous change in the future organisation of international assignments, and the need for a flexible approach from HR. "There are many different types of assignment and many different tasks involved, and it may not always be appropriate to pay school fees, arrange trips home and provide other generous allowances."
Case study: ILO
Organisation: International Labour Organisation
(ILO)
Number of employees: 2,230
Locations:
significant presence in 60 countries
Number
of staff on international assignments: 800
The ILO is a United Nations agency that seeks the promotion of social justice and internationally recognised human and labour rights. It sets minimum standards of basic employment rights encompassing freedom of association, the right to organise, collective bargaining, abolition of forced labour and equality of opportunity and treatment. The ILO provides technical assistance primarily in the fields of vocational training and rehabilitation; employment policy; labour administration; labour law and industrial relations; working conditions; management development; cooperatives; social security; labour statistics and occupational safety and health.
Alan Wild, the ILO's director of HR development, says the organisation expects at least a quarter of its staff to be engaged on three to five year international assignments at any one time.
ILO staff located outside their home country receive relatively generous tax-free salaries based on US civil service rates. They also have diplomatic immunity. As far as organising international assignments is concerned, the ILO has a big advantage over other organisations - it is not covered by national employment laws. The ILO sets its own employment regulations, with its own justice system and tribunals.
The ILO's pay system for staff on international assignments is straightforward - a US dollar salary plus country cost-of-living allowances. So, for example, Bangkok is currently rated zero in terms of the level of cost-of-living supplements, and ILO staff on placement there would receive basic salary only. A Geneva posting would attract a 23% cost of living salary supplement.
Contrary to the tendency among many multinational organisations to restrict the number of foreign nationals working in any one country in order to develop local talent, the ILO, in common with other UN agencies, makes every effort to ensure that the staffing of its operations is truly international, achieving a level of diversity that most chief executives can only dream about.
"The organisation needs to look and feel international. We want to maintain a political distance between ourselves, trade unions, employers organisations and the government in every country in which we operate," says Wild. Although the ILO does not apply a nationality quota system, it does have a series of guidelines on nationalities, which, as Wild says, forces the organisation to look for diversity. "The only way to get real diversity is to set targets and monitor them," he says.
Wild believes the ILO can teach large international companies about staff diversity. He gives an example of the organisation's senior management team, which has 16 people from 14 different nationalities.
The ILO does not provide a great deal of formal preparation for people embarking on international assignments. It relies, in the main, on informal networks established over a period of years. Wild says that because ILO offices are staffed by so many foreign nationals, they all have the same issues to contend with and advice is readily available on overcoming a range of problems from finding accommodation to registering with a doctor or buyinga car.
Wild says that health, safety and security issues are important. Before people go on an assignment they get a thorough health check and, where appropriate, receive vaccination against disease. Security arrangements are handled through a separate UN organisation. The UN operates a phased security protocol, ranging from no immediate danger to full evacuation.
Since the terrorist attacks in the US on 11 September 2001, the ILO has been conducting a security review of all its staff and locations throughout the world.
Case study: LexisNexis Group Europe
Organisation: LexisNexis Group
Europe
Employees: 2,500
Locations: Most major western
European countries and Poland
Number
of staff on international assignments: fewer than 10 on long-term secondments
LexisNexis is a global information provider specialising in meeting the information needs of the legal, tax and business professions. It is part of the Reed Elsevier group of companies.
Richard Eastmond, HR director of LexisNexis Europe, has had a number of years' experience devising the most effective ways of moving people around the globe. He says a global organisation needs people with international experience and an ability to develop local talent.
Eastmond is not convinced that most companies fully understand the hard reality of globalisation. He suggests there is a tendency to think in terms of a global mono-culture, which underestimates language and national cultural differences. He also explains that, for his company, an international brand has to be fine-tuned in order to have meaning in different countries, and requires considerable face-to-face contact between the company, its partners and customers.
In line with our other panel members, Eastmond says international organisations must develop local talent wherever they have a presence. "We are an international organisation and for business reasons require considerable local knowledge - the task is always to devise a training programme to develop a skill set that is not available locally." But he points out that there are countries where it is only appropriate for local nationals to be employed, particularly at the top of the organisation. LexisNexis Europe is currently setting up a company in Germany. Eastmond would not consider appointing a non-German senior management team. In this business environment, he says, it is imperative to have people who communicate within a nationally prescribed set of cultural norms.
The group pays a great deal of attention to helping seconded staff when they arrive on international assignments. Executives relocating to the UK from the US are handled by Prudential Relocation, a global mobility management firm that can provide a range of services including transport, home purchase and renting, together with language and cultural training.
Eastmond says there is always a need to help staff assimilate quickly, as initial lost time is often difficult to restore. He says firms underestimate how difficult blending into another culture can be, particularly when the company can do little to help with, for example, initial social isolation, which can have a negative impact on work.
Eastmond says that the organisation pays particular attention to the safety and security of staff who are seconded to countries with a reputation for high levels of crime against the individual. South Africa is of particular concern at the moment.
Case study: Johnson Matthey
Organisation: Johnson Matthey
Number of employees:
7,500
Locations: 34 countries
Number
of staff on international assignments: 55
Johnson Matthey is a speciality chemicals company. The group's principal activities are the manufacture of auto catalysts and pollution control systems, fuel cell components, pharmaceutical compounds, chemicals; the refining, fabrication and marketing of precious metals; and the manufacture of colours and coatings for various industries.
Peter Garfield, Johnson Matthey's HR controller, has many years' experience dealing with expatriate issues for the company. He provides a stark illustration of the considerable costs involved in arranging an international assignment - that of a Johnson Matthey employee moved from a job in Argentina, which paid a salary equivalent to £28,000, to an assignment in Belgium, where the annual assignment costs were £160,000. According to Garfield, the company is endeavouring to place people on local terms and conditions rather than expatriate ones. This can be a difficult task almost everywhere outside North America and especially in countries where local labour market rates of pay are unattractive. The company has plants in India and China where reliance on expatriates is high.
One of Johnson Matthey's biggest plants is in South Africa, where it is also difficult to recruit labour and where Britons and Americans dominate senior management. The company is trying to get more control over the taxation costs of moving staff from country to country. Garfield says the main objective is to have a better understanding of the total cost of an assignment in advance. There is a plethora of complicated tax rules relating to expatriate employment, he adds.
The vast majority of Johnson Matthey's expatriates are engaged in project work associated with building new factories. Garfield says that once new plants are up and running, the company will encourage the employment of local managers and professionals.
Meanwhile, Garfield outlines the help given to assimilate staff into different cultural environments, both before and during an international assignment. He regards many of the costs as unavoidable. "We tend to incur a high level of cost because we have identified the need to encourage skilled people to travel abroad," he says.
Garfield says that safety and security issues are important to the company. In some locations, particularly South America, security is the number one priority. There is generally a clause in employee contracts that provides for immediate repatriation in the event of a security problem - as was the case in 1998 when the company repatriated its entire staff from Indonesia because of civil unrest.
Johnson Matthey's policies on staff on international assignments are well established. Garfield has been turning his attention to the implications of European integration, and particularly the introduction of the single currency, which will ease the cost of labour mobility between EU member states. He predicts that one effect of the UK joining the euro would be to reduce the cost to British companies of sending people on EU-based assignments.
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On 8 October 2001 the European Union (EU) Employment and Social Policy Council adopted the Regulation establishing the European Company Statute (ECS), and the accompanying Directive on the involvement of employees in the European Company. The ECS was first posted in 1970 and then proceeded thorough some 30 years of revisions, impasses and revivals before the Council of Ministers reached a political agreement on the Directive and Regulations in December 2000. Following approval by the European Parliament in September 2001 with a number of amendments, which were not taken up by the Commission and Council - the Council was able to adopt the two instruments in October 2001. The ECS Regulations give companies the option of forming a European Company, which can operate on a Europe-wide basis and by government by Community law rather than national law. The Directive lays down the employee involvement provisions to apply in a European Company - providing for negotiation between management and employee representatives. Involvement constitutes the information and consultation of employees and, in some cases, board-level participation. Under the Regulations, a European Company may be set up by two or more EU-based companies of various forms from different member states, by merger or by creation of a joint holding company or subsidiary. A single EU-based company may transform itself into a European Company if for at least two years it has had a subsidiary governed by the law of another member state.
Source: IRS European Industrial Relations Review 336. |
Document extract
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A checklist for expatriate relocation |
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The term "international assignment" is used very broadly. It can be used to describe any of the following situations: Frequent business trips of less than 31 days' duration per single trip, usually covered by company business travel and 'per diem' expenses policy.
Short-term assignments of over 31 days but less than 12 months. The employee may become technically employed by the host country subsidiary, with certain additional benefits according to the circumstances of the individual. Career management remains the province of the home country, while performance management may be shared.
Long-term assignments, usually three years or more. In this situation, it is more likely that career management issues will be passed to the host country, possibly under the guidance of a corporate 'mentor'. Over an extended period of time, the employee usually moves on to local terms and conditions.
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Why use expatriate employees? |
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The requirement for an expatriate needs to be clearly identified right from the beginning, not least for the purposes of obtaining work permits. Possible reasons for using an expatriate are to: fill a post where no local staff are qualified;
train local nationals;
transfer technical expertise;
develop international employees;
promote better understanding between different parts of the company;
provide greater control over the local subsidiary/division;
provide a development opportunity for an employee within the overall succession
plan for 'high fliers' and key employees.
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Preparatory steps |
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Prior to initiating discussions with an employee regarding an overseas assignment, the following will need to be checked: Is the company entitled to send the employee abroad? Is this entitlement written into his/her contract of employment, and if not, will the employee agree to the proposal? Bear in mind that mobility clauses are notoriously difficult to enforce.
Is the company giving adequate notice of the new posting? This is especially important in the case of a long-term posting.
Will the employee retain the right to return to their "old" job on repatriation?
What provision is there for termination of employment whilst overseas and what repatriation arrangements would apply in the case of such an event?
Is it necessary to review the disciplinary/misconduct policy in line with particular requirements at the new location?
Has the employee been informed that working abroad will not affect 'continuity of employment' but that rights relating to unfair dismissal, redundancy, maternity leave are affected? For redundancy purposes, employment abroad does not count towards continuous employment unless National Insurance contributions are payable.
How will local legislation affect the contract? In Saudi Arabia, for example, seconded employees are subject in some instances to statutory disciplinary or grievance procedures and must also abide by local laws.
Consider the taxation and National Insurance issues carefully. Depending on the host country, companies can find themselves carrying heavy tax burdens where employees are to be employed by the UK (headquarter) company and seconded as opposed to being employed by the local subsidiary company. In the latter case, employees can be employees of the national or local subsidiary but be provided with a side letter confirming that their continuity will remain unaffected with the UK employer, both during and after the secondment.
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Terms and conditions |
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Managers must have a clear and thorough understanding of what is to be offered to the employee, in line with company policy and procedure. Comprehensive details of the terms and conditions must be communicated in writing and be clearly understood by all parties. Employees may by advised to seek independent legal advice and will often benefit from available literature on living and working abroad. Where there are frequent movements of employees, all parties may benefit from an employee handbook covering the main terms and conditions, complemented by an individual letter/contract outlining 'individual specific' terms and conditions. Under the Employment Rights Act 1996, all employees being required to work outside the UK for more than one month must be given a written statement which contains the following information, as appropriate: the period for which the work is outside the United Kingdom;
the currency in which remuneration is to be paid whilst working outside the United Kingdom;
any additional remuneration payable, and any benefits to be provided, by reason of being required to work outside the United Kingdom; and
any terms and conditions relating to the return to the United Kingdom.
In addition, the following information is usually included: base salary;
details of how the salary and allowances will be paid;
responsibility for payment of tax and social security contributions;
provisions for children's education;
benefits such as pension, life insurance, medical and dental cover etc;
leave entitlement and arrangements;
sale of personal effects, eg cars in home country;
shipping of goods ;
definition of dependants, eg parents-in-law, step-children, etc;
pets and quarantine arrangements; and
terms and conditions at termination of the assignment, either at full term or at an interim stage. Source: CIPD (further information is available at www.cipd.co.uk ). |
