Global workforce needs a flexible approach
Paula Garrido reports on a survy of companies’ arrangements for employees who are assigned abroad
Companies are being more flexible in both the type of assignments and the type of arrangements offered to employees who go on international assignment, according to the fourth report by PricewaterhouseCooper’s international assignments practice, which analyses international assignments management among companies in Europe.
The participants were 271 multinationals companies across 24 European countries.
Although only 7% of the companies surveyed say they have adopted a flexible benefits approach, a further 20% are considering this option.
Scott Cromar, of PWC’s expatriates compensation and benefits consultancy team in London, says: “Companies have to be flexible to reflect the diversity of their workforce. With globalisation there has been a big increase in the need for mobile workers on an international scale and companies are finding difficulties in getting individuals to work abroad.”
The main reasons for international assignment refusal include the employer’s lack of forward career planning when the assignment commences; decreasing financial incentives; and, in some cases, the loss of a partner’s income.
“Sometimes individuals may not want to go abroad, for example, because of their partner’s career,” says Cromar. Employees and companies say having a partner plays a major factor in assignments that prove unsuccessful.
Companies are dealing with this by offering assistance to the accompanying partner and financial support for educational purposes to help them find a job on relocation.
The survey also underlines the increase in the use of short-term, commuter and ‘virtual’ assignments rather than the traditional three-year stint. There is a trend among companies to establish internationally mobile employees rather than use expatriates.
“In general, expatriate assignments tended to have an image of being very expensive. Some companies are trying to demystify this by calling them relocations, especially within Europe, as if they were relocated within a country,” says Cromar.
More than 20% of the companies use the term ‘relocation’, even though 80% of them still provide additional assistance such as housing, education and tax advice.
The report also analyses the impact that the introduction of the euro has had on intra-European assignments.
“We have asked some questions on the euro, mainly focused on the difficulties that companies would have in the case of an European salary scale. Overall, the companies could be split down between those who didn’t think the euro will have any impact (44%) and those who did, who tended to think that this impact would be more in the long term rather than in the short term,” Cromar says.
The majority of participants see European Monetary Union as the first step towards greater harmonisation in tax, social security and pensions.
In terms of pension arrangements, almost 60% of the participant companies said they did not have many problems. Those that do find some difficulties, these are in dealing with permanent transferees who are reluctant to move from their home country pension plan.
However, 85% of these permanent expatriates join the host country pension plan while 90% of temporary – and almost 70% of career expatriates – maintain their home country plan.“It’s always been a difficulty choosing the type of scheme to put expatriates in,” Cromar says.
“There are companies looking for a global or umbrella plan for their international workforce, but in the case of individuals working abroad for just a period of time they try to keep them in the home scheme. If they are looking for a mobile workforce that might go from country to country, then companies start looking at more global arrangements.”
The existence of a home company or country arrangement that can be continued seems to be the main criterion that companies apply when choosing expatriates pension arrangements. Where there is not such a home plan, about half of the companies determine the pension agreement on a case by case basis.
The rest use different solutions such as making them ‘notional employees’ of the headquarter country and cover them under its pension arrangements, using an offshore or the host’s country arrangement or, in 16% of the cases, not covering them under any pension plan at all.
Other factors influencing the choice of arrangement are the category – temporary, career or permanent – the length or type of the assignment (see box).
According to the survey, the most important consideration in determining the best pension solution for expatriates is based on responses to their wishes and expectations (40%), followed by ease of administration (24%) and tax efficiency (15%).
Some companies have also changed their pension arrangements for expatriates, to avoid expensive duplication of coverage and facilitate administrative tasks.
In this sense, one solution is to set up international or umbrella pension plans, which would not necessarily apply to all the expatriates but which would represent a safety net for those who can’t maintain membership of their home company or country plan. About 70% of the umbrella plans used are unfunded.
Summing up, Cromar says: “Companies are making changes and looking at their current policies because they are having difficulties in sending people abroad.”
A greater convergence in Europe of taxes and cost of living comparisons could eventually lead to an European pay scale, as well as accelerating the treatment of intra-European assignments as the equivalent of domestic relocations rather than traditional expatriate moves. Some of these changes might well be reflected on the next international assignment survey that PricewaterhouseCoopers will publish, in 2001.