An international move will more often than not present a degree of challenge to an assignee and their family in terms of adapting to life in a new location. Differences in climate, language and culture are just some of the factors that will impact on the ease with which the assignee will adjust to life in their new home. Other factors such as personal security, the political landscape, the availability of medical care, education and the standard of facilities will have a direct impact on the quality of everyday life for all residents, regardless of their place of origin.
Remuneration for globally set mobile employees needs to take into account many factors. Market rates, cost of living, tax liabilities and housing costs are often of the norm, but many multinationals also factor in an element of compensation, designed to financially remunerate employees for the difficulties they may experience in adapting to life in a new location. That said, companies ultimately need a policy that will keep the right person in the right place, so it is unsurprising that as mobility allowances are removed, other components of the remuneration package are being used to incentivise the move and the location allowance ceases to be purely a compensator. According to ECA International’s 2012 Location Ratings survey, 12% of companies pay a location allowance and mobility allowance combined into a single payment.
The research found that over half of the companies applying location allowances use a banding system to define them. Typically, locations are grouped into five, six or seven bands and a recommended allowance assigned to each band, normally ranging from zero to 30% of gross salary, although companies apply a broad variation of bands and percentages to suit the specific needs of their organisation and mobile population. According to the research, 64% of companies pay a location allowance to compensate employees for adapting to a different environment, whereas 32% pay the allowance to motivate employees to move to undesirable locations.
The large majority of organisations pay location allowances on a monthly basis rather than as a one-off payment at the beginning or end of the assignment. This is in keeping with the original purpose of these allowances, being financial compensation for adapting to a different environment rather than an incentive to move, funding for one-off setup costs in a new location or a completion bonus. 9% of companies pay additional allowances on top of the location allowance to compensate for assignees living in a very remote area or an area of extreme risk.
Holiday or hardship?
Few people would dispute that an expatriate moving from Paris to Kabul will be eligible for some form of location allowance due to its well documented issues and the considerable amount of adaptation required. However, many may be surprised to learn that a move from Paris to several locations within the Caribbean, for example, will attract an allowance. These ‘paradise’ locations may be a dream destination for a two week holiday but the reality of living there for prolonged periods of time is rather different.
The following examples illustrate why a supposedly attractive posting may actually warrant a location allowance:
Dubai—often thought of as an expatriate haven, with warm weather, excellent recreational facilities and a large expatriate community. There are, however, considerable differences in culture that exist between many locations and the United Arab Emirates. Living in an Islamic authoritarian state and becoming accustomed to different ways of dressing and social norms will require adaptation if you are arriving from Los Angeles or Hong Kong, for example. Whilst society may seem outwardly tolerant, expatriates in Dubai frequently comment on the lack of interaction with the local population and different attitudes towards women.
Cape Town—one of the world’s great cities, offering a diverse range of activities and natural attractions. However, crime continues to be of critical concern for all visitors to South Africa. Although not quite at the level seen in Johannesburg, Cape Town scores very highly in personal security concerns, recognising the significant risk to expatriates living within the city. Many types of crime occur in Cape Town, including violent crime, so it is necessary for expatriates to adopt strict security measures in their everyday lives.
Antigua & Barbuda—seen as an island paradise, but life there can pose a number of difficulties for expatriates. For many common goods there is a limited choice of supply because they have to be imported. For non-food items, such as clothing, choice may be further restricted; boutique shops catering to tourists do not offer an appropriate range to year-round expatriate residents. Furthermore, the location is vulnerable to hurricanes and tropical storms. The impact of dangerously high winds and flooding is not something that has to be considered in the majority of locations hence a degree of compensation is warranted in this respect.
Paul Arkwright
Publisher
