Expatriate International Cost of Living

Although international experience can be helpful for future promotional prospects, companies recognize that employees are cautious about going abroad for “possible future consideration”. Consequently companies usually offer employees financial and non-financial incentives to compensate for the upheaval associated with relocation abroad.

Expatriate assignments can be associated with emotional and physical hardship for the employee and their family. Companies compensate by paying expatriates proportional to the degree of hardship as well as cost of living differentials.

Often expectations for a generous expatriate package run very high, based largely on rumours and urban legend. Individuals may know of expatriates who lived the high life, tax free, and retired early after buying a large house in an exotic location. The reality is a little different for most of us.

Managing these potentially unrealistic expectations is the responsibility of Human Resources and Compensation & Benefits professionals. The challenge is to balance the needs and expectations of employees, with the financial needs of the organisation. Satisfying the needs of both the employee and the organisation requires designing expatriate assignments to benefit both the organisation and the employee.

The amount of salary negotiated should take into consideration a number of factors such as:

• Cost of living difference compared to the assignment location
• Degree of hardship likely to be experienced
• Increased responsibilities such as having less corporate support in remote locations

Negotiating each of the above as separate amounts can simplify an expatriate package negotiation such as:

• Consistency when an organisation sends people to different countries with widely different costs of living
• Helps prevent expatriates from feeling demoted upon their return to the home country because their salary was decreased significantly. It is easier to remove the adjustment made for the change in cost of living and hardship if it is separate from the salary.

Cost of living and hardship adjustments should be based on expatriate life style rather than the life style of local people. Expatriates living in some developing countries may find that local food, basic accommodation, and basic healthcare is relatively inexpensive, while maintaining their old lifestyle with imported food, “expatriate” accommodation, private healthcare, and entertainment/recreation is very expensive. The cost of living for local people is not always the same as it is for an expatriate.

The benefits offered to expatriates are most often better than the benefits offered to local employees, with exception perhaps of places such as the Middle East. Many organisations offer benefits such as tax consultation, relocation, accommodation, transport, visa, immigration, and language training.

Additional benefits that may be negotiated include:
• Cross-cultural training to help manage expatriate expectations by learning more about their future colleagues and local culture.
• A pre-assignment visit can help adjust an expatriates expectations versus the experience of other expatriates in that destination.
• Family benefits: Family adjustment and lifestyle issues are one of the causes of an expatriate not completing their assignment:
o Education for the expatriate’s children is often a deal-breaker for the family to accept an assignment.
o Helping the spouse obtain work.
• Career coaching / mentoring for the expatriate during their assignment, particularly during the first and last six months, and after they return to the home office helps ensure retention and helps manage their expectations for subsequent assignments.
• Repatriation training: Expatriate families and employees can benefit from repatriation training to help readjust to living in the home country and returning to the original work environment. This is often overlooked, while all the focus is on assisting the expatriate adjust to the host country.

A flexible approach to negotiating an expatriate package that is a win-win for both the employee and the organization is required. One size does not fit all!. A young, single accountant has very different expectations and needs compared with an older engineer with a family.

Calculating an appropriate salary package taking into account the existing salary, cost of living and hardship differences, as well as accounting for increased responsibilities may help ensure that the most important needs of prospective expatriates are addressed.

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