By Rob Thissen*
As the first part of 2016 draws to a close and we head towards the long, hot and uncomfortable Gulf summer, organizations are looking every which way as they navigate the uncertain period ahead. It’s the oil price. It’s the geo-political climate. It’s government spending cuts. It’s even the view from global HQ in some foreign location where it’s sunny one day and raining the next. In an HR world, this prolonged uncertainty has been forcing Gulf teams to an ever tighter management of people and people costs, and to keeping an eye out for opportunities to improve efficiency, minimize risk, and help the bottom line.
So what practical steps can HR take in these unpredictable times? Should companies pay bonuses to keep everyone engaged and in the building? Should they review their workforce & workload in a bid to find the fat? But once they find the excess: how, where and when to trim? This article is aimed at one subset of the Gulf economy – the multinational entities with mobile workforces working and living abroad – and how they can take greater control of their cost base.
Let’s start with some quick fixes:
Move away from individual deals: when looking at the evolution of international assignment compensation policies, we can generally identify 3 stages; first companies tend to strike individual deals, after some time develop an over-arching policy to enforce equity, and nowadays many multinationals adopt a segmented approach to mobility policies. It is our view that most Middle Eastern multinationals are still in the first stage. Individually negotiated contracts offer flexibility, but tend to be expensive in the long run, particularly when assigning employees from the GCC with its very generous pay packages. We are encouraging our Middle Eastern multinational clients to develop compensation approaches that motivate employees to undertake assignments, but are not overly generous. Most companies end up with the so-called “Balance Sheet Approach” – home-based pay plus cost of living adjustments, hardship allowances and expatriate benefits.
Avoid paying double allowances where possible: Most (local) compensation packages in the GCC include allowances and benefits which in the rest of the world are only provided as part of international assignment packages - such as housing, schooling and transportation. The majority of multinationals are removing these allowances when sending someone based out of the GCC on international assignment, and start calculating pay on the base salary. An exception may be GCC nationals, who often keep receiving these allowances for various reasons. Companies in need of cost containment should assess carefully if they are in a position to remove allowances, and for whom.
Housing and (international) schooling budgets: These are by far the two most expensive assignment benefits, mainly in popular expatriate destinations with an undersupply of good quality housing and schooling, and in countries with security concerns. We find that companies from emerging markets in particular don’t have predefined budgets for these benefits. We strongly advise using data sources like standard housing tables to determine maximum rental budgets and schooling budgets per location. Secondly, many companies nowadays differentiate housing budgets by job grade and family size, to avoid unnecessary accommodation costs. Regarding the schooling benefit, some companies would not pay for international education where the local public system provides an adequate education level, in the right language (typically English).
Control the duration of assignments: While it might sound trivial for many mobility specialists, countless companies have no appropriate mobility policies in place. As a result, employees can end up on very generous international assignment packages for over 5 and sometimes 10 years. Companies need to protect themselves and set a maximum duration for assignments, which typically range between 3 and 5 years, followed by repatriation to the home country, another assignment, or localization.
Some optimizations will take longer to implement, such as a review of mobility policies and the assignment management process
Avoid default hard currency (USD) payments where possible: Considerable numbers of companies from the MENAT region move international assignees onto US dollar salary spines and/or pay their salaries fully in USD or Euros. In times of a strong dollar, this can be very costly to the business. Of course, hard currency payments may be a requirement in countries with very volatile currencies, as is the case in some African countries, and when there are difficulties in converting money between home and host country currency. However, we advise to review your assignment locations and use dollar-denominated salaries or dollar payments as an exception, rather than the rule.
Explore a segmented mobility policy: As discussed above, many larger multinationals are currently moving towards a segmented mobility policy. This means transforming a “one policy for all” approach into a multi-tiered policy, segmented by the business and talent development value of an assignment. One of the main objectives of choosing this approach is cutting costs on “employee initiated” assignments, and “learning and developmental assignments” for high potential employees.
Explore technology to optimize processes: Technology, ranging from salary and tax calculators to full assignment management databases, has made inroads into international assignment management since the early 2000s, although in our region the take-up stays very much untapped. Of course, IT budgets are currently being squeezed, but as we continue to see an increase in talent mobility within and out of the Middle East, technology could be a smart investment, especially in times of hiring freezes.
Other small investments companies can make to improve international assignment management, or the international assignee experience, and hence save cost over time, include:
- Cultural training, ideally for the whole family. Middle Eastern families may find it difficult to adapt to different cultures. Helping them adjust as quickly as possible will increase assignment success.
- Provide spousal support. As the spouse is often not allowed to work, providing education or other networking opportunities will help them integrate and improve their time abroad.
- Assign a Buddy or Mentor. It is most helpful when these buddies have international assignment experience themselves, and it can be exercised during or before the posting. Buddy systems are only arranged by a small minority of companies worldwide but are proven to be highly effective.
- Keep simple metrics such as assignment failure, assignment success and assignment rejection rates.
- Run assignee satisfaction surveys: from time to time run a short survey to understand what is going well, and where improvements can be made.
Times of downturns and unpredictable waters ahead are tough times, but they also provide the environment to make necessary improvements to make your business more competitive. The ideas we list now are far from exhaustive, and nor should you aim to act on any or all of them without taking into account your own organisation’s needs and priorities. As an HR professional, you may want to consider one or two which you believe will provide the best ROI for your company. Whatever priorities set, this prolonged market uncertainty can be a boon for HR professionals to showcase their business acumen: tighter cost management of people and payrolls, keeping an eye out for opportunities to improve efficiency and minimize risk, and at every milestone across 2016 - helping the bottom line.
*Rob Thissen is a Consultant with Mercer’s Talent Mobility business for the Middle East region. Rob is based in Dubai.