How firms can optimise their spending on expats

THE merger of International Enterprise Singapore and Spring Singapore has brought internationalisation to the forefront of Singapore's national agenda. For companies looking to expand overseas, global mobility will play a huge role in their business decisions and allocation of funding.

In our increasingly borderless world, the money spent on mobility can add up quickly - from higher pay grades pegged to expatriates to costs associated with relocating employees and, at times, their families too. Against the backdrop of a sluggish economy, many firms have revised their mobility policies, dropping allowance amounts and reducing employee benefits to cut costs.

Singapore, for example, still boasts one of the most generous salary and benefits packages in the Asia-Pacific region, but the typical expatriate package for middle managers here has fallen to a five-year low of S$313,600, according to ECA International's latest Expatriate Market Pay Survey.

Scaling back on packages alone isn't necessarily the best move - while it may help companies save in the short run, packages that aren't competitive could drive up assignment failure rates, leading to cost wastage. Rather than zero in on individual benefits for reduction, companies should instead approach cost optimisation more holistically and strategically to make the most out of their investment in global mobility.

Prepare employees for relocation

At the centre of all assignments is the employee themselves; a happy employee makes for a successful assignment. But when expatriate assignments are terminated prematurely, companies not only waste the cost of hiring, training and relocating the employee, but also opportunity and disruption costs.

Retaining talent is a challenge faced by companies, with the number of international assignments terminated rising by close to 50 per cent from 2012 to 2016, according to ECA's Managing Mobility Survey. A mismatch in expectations was cited as the top reason behind assignment failure - around three in five employers indicated that assignments terminate early or fail to meet objectives because the assignee's performance was below expectations, so the company may initiate termination to cut their losses. On the employee's end, dissatisfaction with their new role may lead to termination too, as reported by nearly 50 per cent of companies.

Expatriate families also find it difficult to adapt to their new living circumstances, which may lead to assignment failure. Although cultural issues play a huge role in almost half of these cases, only 18 per cent of employers offer cultural training for the assignee's family, while some 40 per cent do not provide it for their assignees either.

To help assignees adapt better in a foreign environment, companies should prepare them for the realities of their move abroad. Mobility teams ought to communicate to assignees in advance comprehensive information about the demands of their new role and manage their expectations of the host country.

They could design questionnaires, case studies and checklists to help assignees identify potential issues before they commit to an assignment, and ensure that the right employee is matched to the right assignment. Intercultural assessment paired with cultural and language training could also facilitate smoother assimilation of assignees into their host countries, contributing to talent retention.

Develop multiple mobility policies to optimise remuneration

Many companies today use multiple salary and policy approaches to optimise costs and accommodate different assignment types. For instance, today's expatriate increasingly prefers short-term or commuter assignments, compared to the traditional long-term assignment that held sway over the last century.

In 2008, nearly two-thirds of international assignments comprised long-term assignments (typically around three years), and ECA's studies show that this figure is predicted to fall to just 45 per cent this year. Likewise, shorter-term assignments of one to six months are becoming more prevalent, now making up over 20 per cent of all assignments.

In response to shifting expatriate demographics, companies are expanding their policy suites to better match the most appropriate policy to each assignee; 26 per cent of companies today use more than one policy, up from 11 per cent in 2001. Implementing multiple policies not only accommodates the needs of today's expatriates and reduces assignment failure rate, it also allows firms more flexibility to optimise costs through different remuneration approaches - home-based, host-based, dual and hybrid structures.

From salary, housing and cost-of-living allowances to exchange rates and tax legislation, costs can vary extensively depending on the home and host country of the assignee. Housing expenses, for example, can range from sky-high rates in a high-density city such as Hong Kong to more affordable homes in Indonesia.

Meanwhile, different tax requirements across countries means compensation structures can be designed to minimise tax expenses. Mobility policies should therefore be backed by a firm understanding of cost variations, apart from benchmarked expatriate salaries in the market.

Long-term cost optimisation

When asked about their strategies to improve assignment success rates, many companies cited frequent reviews of their mobility policies. Indeed, ensuring mobility programmes meet employee and business demands will boost assignee satisfaction and circumvent early termination. Continuous evaluations to improve mobility policies therefore help pave the way for long-term cost optimisation.

Do their global mobility programmes have the right structure and offer enough flexibility for the assignee? Mobility leaders not only have to ask themselves this when reviewing policies, but also gather insights from assignees during and after assignment, and from businesses and industry peers too. Policy evaluations have to be done holistically, taking into account wider business needs, from talent development and diversity, to emerging and growth markets, and risk and compliance.

Finally, there is no better way to find out whether a programme works for the assignee than asking them directly; assignee welfare, satisfaction and retention rates play a crucial role in talent management and should be closely tracked. Unfortunately, over one-third of companies do not measure this, as reported by ECA's Global Mobility Organisation Survey 2017. They thus lose out on critical insights that can help them improve in staff allocation and management.

Seeing that global mobility has long met the global demand of talents by companies and created cross-border talent pools, investing in mobility programmes is necessary, both for multinational corporations and companies with small populations of mobile employees.

While cost savings is important, it shouldn't be done at the expense of assignee satisfaction, or risk driving up high assignment failure rates. Mobility leaders have to adopt a more strategic and holistic approach to managing mobility spend, rather than narrowly slash individual benefits and tackle cost savings in silos.