Compensation & Benefits

Decrypting expatriate compensation – The local plus and local approach

In this third article in a series on global mobility, learn about how the local plus and local approach helps companies calculate expatriate compensation.

A local plus approach is a host-based approach where the assignee compensation is delinked from the home country and is pegged as per the role of the host country. Additionally, the ‘plus’ refers to the allowances or benefits that are delivered as cash/lump-sum/ actuals to the assignee, such as home leave, spousal assistance, medical facilities, car benefit, education, housing, tax preparation, etc.

Illustration:

An assignee is moving from Delhi to Shanghai, at a home salary of INR 70 Lacs + Variable Pay (20%)
An assignee is moving into a CEO role at Shanghai
Local salary of CEO is offered at CNY 750,000 + Variable Pay (30%)
‘Plus’ elements called out as Education (CNY 287,000 (school 1 kid) + House (CNY 216,000) + car on actuals + Social Security (CNY 200,000)
Total Package CNY 1,453,000 + Variable Pay (30%)

Latest trends:

According to Mercer’s 2017 WIAPP Survey, only 9% of the companies globally and 17% companies in India follow local/ local plus approaches
According to Mercer’s 2016 Local Plus and Location Specific Survey, 47% of the companies have policies for local-plus assignments. The most common assignment locations for local plus policies are Singapore, UAE, and UK

When is local plus approach used:

It is a market-driven approach and promotes equity with local employees. The ‘plus’ takes care of additional expat requirements.
It is a good way to strike a balance between a home-based balance sheet and host-based pure local package. However, important to look at the cost of the plus items, especially the high-cost ones like housing, cost of international school. They could swing the total balance aside.
It is easier to use when expats are moving from a relatively low wage home country to a higher wage host country, e.g. India to Singapore. Though, repatriation maybe a challenge or moving them from Singapore to a low wage country would be a challenge.
It is a good approach if the assignee is likely to continue in the host city for a longer period of time, especially in situations where the role has moved from the home city to the host city.
It is typically, seen as a successful approach when salary levels, taxes, and living standards are comparable, like intra-regional such as moving from Singapore to Hongkong or France to Germany or US to the UK.

How are increments managed:

Increments are awarded annually on the host country salary.

LOCAL APPROACH

As the name suggests, it is purely a host-based approach, where the assignee is treated like a local employee and given all allowances and benefits like a local.

Latest trends: According to Mercer’s 2017 WIAPP Survey, only 9% of the companies globally and 17% companies in India follow local/ local plus approaches.

When is the local approach used:

It is a market-driven approach and promotes equity with local employees.
It is easiest to administer and makes a transition to host city, less complicated. While simplifying administration, it is challenging to implement given the vast differences in salary levels (and cost of living, and quality of living) worldwide.
It is typically used in case of permanent transfers and/or to offer a locally hired foreigner or to localize an expat.
It is easily accepted in case the incumbent is moving from low wage to high wage country, like India to the USA. However, will not work well in a reverse situation.