Innovations In Global Mobility Vol. 1, No. 2, 2011

How Do "Expat Lite" Programs Manage to Cut Costs?

"Expat lite" refers to a reduced version of the traditional balance sheet approach, which maintains the assignee's standard of living throughout the assignment (with the exception of any incentives the employer decides to provide). A full expatriate package – base pay, premiums, a wide array of allowances, and other perquisites (e.g., a company car and, if necessary, driver) – generally costs the company about 2.5 times the individual's annual base salary. In comparison, expat lite packages can significantly lower the overall cost of an individual assignment.

This cost-reducing impact can be substantial if the company has a large expatriate population for which this type of package is appropriate. To that point, management often considers the following employee types eligible for a reduced assignee pay package:

• Employees who relocate abroad on a developmental assignment (typically younger and often single individuals)
• Certain categories of employees, such as those whose job does not involve either bringing in a lot of revenue or high risk

Multinational organizations often send employees on assignment for management development or training. With such assignments becoming common, more companies today are considering the implementation of multi-tier policies. In other words, the company develops policies to address different assignment types – short-term, commuter, long-term, and the "lighter" categories.

How Expat Lite Works

In line with the traditional balance sheet approach, expat lite follows the overall "equalization" philosophy. The difference is visible in the lower premiums and allowances, for example:

• Since the assignment experience itself is the incentive for the individual to go abroad, a traditional foreign service premium is often unnecessary. If the employer pays a premium, an alternative is to cap it. Either way, a hardship premium might still be appropriate, depending on the severity of the local host conditions, but at a reduced percentage of base pay.
• Host housing accommodations may be smaller and located in neighborhoods that are different than the typical high-priced expatriate communities. The company may also cut back on assistance for the sale or property management of the home-country residence; however, this aspect may be unnecessary for younger, single, early-career assignees who are not homeowners. Another option is to reduce allowable limits for furniture and household shipping or periods of temporary housing.
• Cost-effective cost-of-living indexes may be appropriate, depending on the availability of high-quality goods and services in the host location. An employer might also cap the goods and services differential that bridges the gap between home and host prices.
• If the assignee is single, education allowances are unnecessary. That said, if children accompany the expatriate, and public schools are adequate, the company might consider restricting education assistance to local schools, letting the family pay for private education if they so desire.

Employers are starting to use these packages as part of the organization's talent mobility strategy. As such, they link the career enhancement and experience to the individual's development plan, which is far more valuable than cash allowances or expatriate benefits.

When implementing a reduced expatriate package, the company's culture and overall budget play key roles. What one company might reduce or eliminate, another might find necessary. Expat lite programs can work on behalf of both the company and the employee – strategic goals are achieved, while the assignee earns international experience.

About the authors

Ed Hannibal is the Partner responsible for the Mercer's Global Mobility business in North America. He manages four regional teams in New York, Chicago, Dallas and San Francisco. He also carries out consulting projects, specializing in the development and review of international and expatriate compensation programs.

James O'Neill is a Principal with Mercer's Information Product Solutions business where he specializes in expatriate management. In his current role as Director, Benchmarking Services, James designs and conducts policy, administration, and assignment-cost benchmarking surveys for invitation-only club benchmarking groups.

Ed and James are based in Chicago and can be reached at ed.hannibal@mercer.com and james.r.oneill@mercer.com respectively.