This article is taken from the Leadership Supplement from

Relocate Think Global People

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This article begins with a story. When teaching university students about international reward approaches, I always begin by getting them to tell me what they believe is fair. Typically the class comprises international students from multiple countries – some come from countries with high rates of pay (Norway, Switzerland), others from countries with relatively low wages (Morocco, Ethiopia). For the purpose of the exercise all of these students are going to be relocated to the USA, to a relatively high wage and cost of living city, such as San Francisco, and they will all be working together on the same project carrying out similar roles in a team also comprising local people.

Where does equity lie?

The first reward option presented to the class is the home-based approach to pay. Under this, each of these students’ pay will be based on what they earned previously in their home countries with adjustments made for such factors as cost of living and allowances given for housing, their children’s education and so on, with tax equalisation applied, as would be the norm under the balance sheet method. Under the home-based balance sheet assignees should theoretically be no better or worse off than if they had not moved abroad. This means that each of them will be receive compensation that provides equity with their home country peers (enabling easy assimilation into the home pay structure on repatriation) plus compensatory allowances reflecting their move abroad.I explain that this means that their reward packages in the USA will not be same as those of local people doing the same jobs as they are, nor will they receive reward that exactly matches each other. I ask ‘is this fair?’ Without exception, they say ‘no’. Yet the use of the home-based pay system remains the most common approach to expatriate reward. They look puzzled. They see no equity in this approach.The second reward option is the host-based approach. Under this, each of the students will receive the exact same salary as local people. They might receive some additional help (for instance, with housing to recognise the temporary nature of their posting) under a host-plus arrangement, but otherwise their reward package will match those of locals and other assignees doing similar jobs.I explain that this means that each of them will receive compensation that provides equity with their host country peers and with each other. I ask ‘is this fair?’ Without exception they say ‘yes’. Yet the host-based reward approach, while increasing in popularity, is not anywhere nearly as widely adopted as the balance sheet. Again they look puzzled. They see equity here, so why do organisations not all use this approach?The third reward option is the globally mobile approach. Under this, each of the students receives a similar reward package which has been designed for employees who are part of a globally mobile cadre. Their salaries will differ from those of local people doing the same jobs. I explain that this means that each of them will be receive compensation that provides equity with their globally mobile peers. I ask ‘is this fair?’ This elicits a mixed response.Returning to their identified equitable reward method, the host-based approach, I then introduce the notion of moving from especially high paying countries to the chosen destination, explaining that true host-based pay would mean that these students will receive lower salaries than they would have had at home. Again, I ask ‘is this fair?’ Now they think less so. And what of those moving from low pay countries to the US destination who will now receive more than they received at home? ‘Is that fair?’ Now comes the point when those who will lose out on moving are not happy that other colleagues will gain. The notion of perceived equity flowing from host-based pay has begun to erode now that similar referents that stand to gain more are introduced into the picture. And the final question, for those moving from low pay to high pay countries would they want to go home? Usually, the answer is ‘no’.

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The importance of perceived equity

When designed and implemented effectively, international assignment reward policies support assignment acceptance, employee satisfaction and motivation outcomes but when poorly constructed, costs can increase and barriers to current and future mobility can be created.Today, it is the norm for employers to use a range of reward approaches. The home-based approach is often used for senior personnel, those moving abroad to fill critical skills gaps and for assignments when repatriation is envisaged. Where the low/high net pay combination potentially makes sense, host-based approaches may be used. These leaner packages are also used for junior staff, developmental assignments and volunteers. When there is no expectation of return and personnel are on a globally mobile career path, the global cadre approach might be used. Going beyond the overall choice of reward approach, as multinational companies increasingly add flexibility into their policy design and implementation to reduce exception management and personalise policy content to improve the employee experience, unintended consequences can result. These include potentially detrimental assignee perceptions of inequity, leading to unwelcome return on investment outcomes such as assignment refusal, poor performance or early return.Different reward approaches with adjustments made to achieve the desired mobility outcome can seem logical to employers, but to assignees, the rationale for different groups and individuals receiving different packages with additions or deductions to pay made when they are working in similar environments with common challenges can seem inequitable. Perceived inequity can arise when different approaches are used to managing different assignment lengths/patterns and assignee groups as well as when a single reward approach is taken for all assignment types, for example when flexibility and personalisation is applied to the compensation and benefits received.

The role of equity theory

Equity theory predicts that assignee reward will only result in satisfaction if it is considered to be fair. However, perceptions of equity are related to a variety of factors that are difficult for employers to predict. For example, assignees bring their competencies to the position and these may be valued differently by the employer and the assignee. If assignees feel their competencies are under-valued as reflected in their pay and benefits, this can be a source of perceived inequity.Individuals also make comparisons between themselves and their colleagues. They consider what they bring to the position and what they receive in return and compare this with a range of referents. However, employers cannot know whom assignees choose as referents (other assignees in the same or different locations, locals, peers at home) so it is difficult to establish where assignees see inequity arising. With so many referents, perceptions of inequity are inevitable.As the plethora of permutations of policy elements that apply to different assignee circumstances increases in order to improve employee experience of the mobility process, so this opens the way for comparison between and among assignees and greater potential for perceived inequity.Despite this, Global Mobility professionals must consider how the design and implementation of international assignment reward policies influence assignees’ equity perceptions and try to avoid negative effects. They must also consider the impact on perceptions of equity as seen by local employees. This is because perceptions of inequity will affect locals’ working relationships with assignees. This is particularly important in low pay economies where home-based approaches to reward are used for assignees and incoming personnel can appear privileged and very wealthy.

Communications

Organisations must ensure that they use clear and robust communication approaches to explain any differences in compensation and benefits received by their assignees. If organisations are to reduce perceptions of inequity, assignees must fully understand why their packages differ from those of others in seemingly similar circumstances.It is important that time is taken to explain policy content and its intention. This communication process should take into account the specific circumstances of each assignment, bearing in mind potential referents that assignees may have in mind for comparison.Simple solutions to international assignment reward are not possible and there will always be room for perceptions of inequity. Notwithstanding this, reducing perceived inequity as far as possible though communication can help to reduce potential unintended negative consequences of organisational actions to improve the employee experience.

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