Abstract
Expatriate compensation has been commonly said to be a very complex and challenging issue both for expatriates and companies. As an outcome, dissatisfaction with the compensation is reported to be very high among expatriates. In the light of this, the present study provides new empirical evidence of the recent compensation practices among Finnish expatriates (n=301), and in particular, of the sources of satisfaction and dissatisfaction with the reported practices. The results indicate that the most difficult issues were found to be taxation, availability of information about local cost-level /standard of living, currency rate risks, social security and pension issues, as well as spouse-related issues. In contrast to the earlier reported findings, the majority of the expatriates were satisfied or even very satisfied with their treatment. The major sources of satisfaction were the lower level of taxation, the higher total salary-level and allowances (in particular the car allowance). Furthermore, in the majority of the cases the expatriates reported that the companies had clear compensation principles, that they had enough prior information to negotiate and thus the contract-making situation was not perceived to be very difficult. The reported redesign needs regarding existing compensation packages were found to vary a lot from case to case, but the most common issue was a too low total salary-level. In the end, advice for future expatriates and international companies is given.
Key words: expatriates, compensation, satisfaction
The research on expatriate compensation has been scarce although many other aspects related to international transfers have been under active concern (Briscoe 1995: 128). For example, Bonache and Fernandez (1997: 457) state that compensation is the aspect of expatriation which has received least attention. On the other hand, expatriate compensation is a complex issue both for individual expatriates and for international companies. For example, Hamill (1989: 26) states that the compensation package is one of the most difficult elements in expatriate policy. The complexity is linked to the diversity of the goals, which should be taken into account in the development of international compensation policies and practices, as will be discussed later. According to Stone (1986: 69), having expatriates is a costly business, but having a bad international compensation program is disastrous. A well designed and maintained program can ensure that costs are controlled and that expatriates remain motivated and productive. Furthermore, the importance of expatriate compensation has increased because foreign assignments are seen more as a normal part of a business career than as an exception in one’s career in international companies (see e.g. Schell and Solomon 1997: 114). Thus expatriate compensation policies are a central part of the compensation policies of such companies.
Challenges related to expatriate compensation can be seen in the high level of dissatisfaction of international employees with their compensation package. For example, Black (1991) has reported that 77% of the expatriate managers were dissatisfied with their expatriation salaries, their benefits and their international compensation packages in general. In line with this, Harvey (1993a), for example, reports that 80% of the expatriates find the achievement of equality in their salary in comparison with their colleagues to be a very significant problem. In addition, many authors describe the assignment failure (i.e. return to the home country before the end of the assignment) as one of the biggest drawbacks companies have to face. In that discussion the role of compensation has also been brought up. For example, Hamill (1989: 24) found that the high failure rate among expatriate employees in US multinationals is typically a consequence of many different factors including poorly designed compensation packages (for a more specific discussion of these factors, see e.g. Brown 1987; Scullion 1991: 35; Solomon 1996: 38).
It has also been recognized that compensation strategy is one of the most powerful tools for focusing attention in organizations: it sends clear messages to members of the organization about expected attitudes and behaviors (Schell and Solomon 1997: 116). In line with this, Bailey (1995: 148) states that the challenge for a global company is the design of compensation programs that span the world and support the organization’s strategic goals and objectives. If individually tailored expatriate compensation packages were possible in the past, new global corporate strategies have forced many companies to develop compensation policies and plans that guarantee consistency across borders, equity and transferability throughout the entire working life of the new mobile work force (Bailey 1995: 149). Firms need to strive continually to achieve maximum effectiveness with typically limited and closely monitored compensation budgets.
Expatriate compensation programs are also frequently under re-evaluation due to the changing situations of the companies. For example, Harvey (1993a: 787) identified five main reasons for modifying the existing international compensation programs: dissatisfaction with the present results (i.e. attracting, motivating and retaining international managers), the increased number of employees in international assignments, the increased number of nationals and TCNs in the organization, the complexity and diversity of foreign assignments, and the integration of foreign acquisitions with domestic operations. Due to such varying and different needs across companies, no particular approach and no specific package components could be recommended more than another (e.g. Stone 1986: 69).
All in all, expatriate compensation has been found to be a challenging issue to deal with and, furthermore, there has been reported to be a lot of dissatisfaction with existing principles. In the light of this, the present study aims to increase our understanding of the sources of the satisfaction and dissatisfaction with the compensation of expatriates. The objectives of the present study are:
1) to describe the compensation package design of Finnish expatriates,
2) to analyze the difficulties related to expatriate compensation
3) to analyze the level of the expatriates’ satisfaction with their compensation, the determinants of such satisfaction, and redesign needs related to compensation.
There are different expatriate compensation approaches which companies can follow when they formulate their compensation policies. Although the use of such approaches is not focus on in the present study, they are briefly discussed in order to make the different possibilities related to expatriate compensation understood. At the same time, different elements of compensation packages are dealt with.
The home-country policy , which links the expatriates’ base salary to the salary structure of their home country, is the most common compensation approach (Crandall and Phepls 1991: 30–31; Dowling et al. 1994: 152). By using this pay system (home base salary plus allowances) the company tends to enable expatriates to maintain a lifestyle equivalent to that which they would have in their home country (Helms and Crowder 1994: 26; Dowling et al. 1994: 152). Typical allowances include for instance the expatriate allowance (or overseas premium), the cost-of-living allowance, housing allowance, education allowance, hardship allowance, car allowance, and home-leave allowance (for a more specific description, see Black et al. 1999). In addition to allowances, one has to consider the necessary incidental benefits because social policies vary widely across countries and still the aim is to protect the benefits provided by the policies to the person in the home-country (see Allard 1996; Dowling et al. 1994). The compensation package can also include bonuses such as a performance-based bonus and a seniority bonus (see Schuler et al. 1994). Protection from exchange risk (see Helms and Crowder 1994: 27; Schell and Solomon 1997: 122) and taxation differences (see Helms and Crowder 1994; Schell and Solomon 1997) may also be included.
The popularity of the home-country policy can be justified by the fact that it provides clear and explainable differences between the salaries of expatriates who hold equivalent positions in different countries (Logger and Vinke 1995: 261). However, this turns out to be a serious drawback to the approach because it results in a lack of equity as there are salary differentials between expatriates and local managers as well as between expatriates of different nationalities (Chadwick 1995: 236; Logger and Vinke 1995; Schell and Solomon 1997: 124). As the number of nationalities in the workforce expands, the home-country policy becomes the most expensive plan to maintain with regard to purchased data and administration costs. It has also been stated that this method works better when all or most of the expatriates come from the same country (Black et al. 1999: 178).
The other approach is the so-called host-country policy . The main difference from the previous approach is that this one considers expatriates as local nationals and links their base salary to the salary structure of the host-country (Dowling et al. 1994: 150; Crandall et al. 1991: 31; Logger and Vinke 1995: 259–260). Thus it covers them according to the policies and programs of the assigned country (Chadwick 1995: 242), which makes this approach fairly simple and straightforward (Black et al. 1999: 180). However, the significant international additional payments (such as cost-of-living adjustments, housing, schooling, travelling and other premiums) are usually connected with the terms of the home-country salary structure (Dowling et al. 1994: 151). Crandall et al. (1991:31) specify that under this host-country pay system expatriates are expected to live on the local economy so the notion of equity with the home country is not an issue. This approach aims not only at reducing the salary inequalities perceived by the employees of the same subsidiary but also at reducing the high costs of expatriate treatment to their minimum for the company. This policy is relatively new but increasingly popular (Allard 1996: 42; Briscoe 1995: 119). According to Black et al. (1999: 175) it operates best with a relatively small number of expatriates or with a cadre of international expatriates. Allard (1996: 42) states that the approach can be successfully applied in particular in areas where differences between countries are not too extensive. As a result of this approach, the obtaining of host-country salary data can be a challenge. Secondly, it complicates the reentry compensation situation (Schell and Solomon 1997: 126).
According to Schell and Solomon (1997: 124–132), companies have also introduced so-called hybrid systems that blend appropriate features from both home- and host-based approaches to respond to specific business challenges. These systems are very diverse and thus complicated to administer. The purpose of these systems is to end up with an international expatriate workforce that, while not coming from one location, is paid as though it were. On the other hand, the compensation is also unrelated to local markets so they provide no equity with local staff. In addition to these approaches, a so-called regionally based pay system has been introduced (Dowling et al. 1994: 151; Chadwick 1995: 243; Black et al. 1999: 175). It allows companies to compensate expatriates working in their home regions at somewhat lower levels than those who are working in regions far from their home. Some companies are also exploring the lump sum approach (Dowling et al 1994:68; Schell and Solomon 1997: 132). The idea of this approach is to pay a total salary to the expatriate, who will determine how to spend it (Briscoe 1995: 120). This is done in order to control costs, eliminate discussion about adequacies of allowances, ease the administration, and empower expatriates to make decisions on their own (Schell and Solomon 1997: 132).
Many authors have discussed the issues which should be taken into account when making decisions considering expatriate compensation policies / practices. In the review of such writings, the difficulties related to compensation appear as the great number of different issues that should be considered. First, the compensation program should attract and retain personnel in the areas where the multinational has the greatest needs and opportunities to provide an incentive to leave the home country for a foreign assignment (Stone 1986: 64; Hamill 1989: 33; Harvey 1993b: 62; Dowling et al. 1994: 149; Helms and Crowder 1994: 22; Briscoe 1995: 108; Logger and Vinke 1995: 255; Logger et al. 1995: 145; Black et al. 1999: 176). It should also be reasonable in relation to the practices of competitors (Briscoe 1995: 108; Logger and Vinke 1995: 256; Logger et al. 1995: 145; Schell and Solomon 1997: 118).
Second, it should at the same time facilitate the transfer of international employees in the most cost-effective manner (Dowling et al. 1994: 149; Briscoe 1995: 108; Logger and Vinke 1995: 255). The cost of expatriates is typically seen to be very high from the company point of view, and thus there are strong pressures to decrease such cost (Briscoe 1995: 125; Dowling et al 1994: 177; Senko 1991; Schell and Solomon 1997: 118). For example, Dowling et al. (1994: 177) have observed a trend toward cost containment among companies. However, there is a danger that the financial pressure to reduce the costs of the company may lead to the alteration in the perception of the overseas compensation package in general. The deterioration of the expatriate compensation package image then makes the recruitment an arduous task (Hamill 1989: 25; Senko 1991: 39) and may decrease satisfaction.
Third, the program should provide stability in the manager’s life-style and economic status when he/ she is transferred to a foreign assignment; in other words, it should maintain a given standard of living for the expatriate (Stone 1986: 64; Crandall and Phelps 1991: 31; Harvey 1993b: 62). Here the influence of different family situations on compensation demands is a typical challenge (Harvey 1993a: 792). Furthermore, one has to take into account various kinds of tax regulations and rates, and still preserve expatriate entitlements at a satisfactory level (Dowling et al. 1994; Helms and Crowder 1994; Holleman 1991; Stuart 1991). The changes in currency and inflation rates (Daniels and Radelbaugh 1991: 778; Dowling et al. 1994:159; Helms and Crowder 1994: 27; Schell and Solomon 1997: 122) and the influence of social security issues have to be considered also (Allard 1996: 40; Briscoe, 1995:141). All these issues increase the complexity of the situation and the information needs with regard to the local context. This is clearly one of the major areas in which expatriates face difficulties if the companies do not provide enough support.
Fourth, the compensation program should accommodate the expatriate’s adaptation to the differences in the internal and external environments of the new organization (Harvey 1993b: 62; Logger et al. 1995: 145). Fifth, it should be consistent and fair in its treatment of all categories of international employees, i.e. it should aim at equality (Hamill 1989: 33; Daniels and Radelbaugh 1992: 775; Dowling et al. 1994: 149; Helms et al. 1994: 22; Briscoe 1995: 108; Logger and Vinke 1995: 255; Logger et al.1995: 145, Bonache and Fernandez 1996: 15; Schell and Solomon 1997: 119; Black et al. 1999: 175). The discrepancy among compensation programs for different types of expatriates (PCNs and TCNs) and between expatriates and local nationals (e.g. Briscoe 1995; Chadwick 1995; Harvey 1993a) has been pointed out as one of the major challenges. For example, Chadwick (1995: 235) emphasizes how a sense of injustice can easily develop when comparisons of salaries are made by expatriates. Similarly, Briscoe (1995:108) describes the problem of comparability as the most important consideration of companies in the design of their compensation program. Complexity arises from balancing the conflict between the three groups: expatriates’ peers at home, the local workforce and expatriates’ peers in the international workforce at the same location (Schell and Solomon 1997: 119). On the basis of these comments, the equality issue appears to be one of the major difficulties faced by the expatriates.
Sixth, the compensation program should also be consistent with the overall strategy of the company and the business needs of the company (Dowling et al. 1994: 149, Bonache and Fernandez 1996: 15; Schell and Solomon 1997: 118). Thus, the compensation program should motivate and stimulate the manager to act in the company’s interest and to perform at a level above/beyond a base-line benchmark established by performance evaluations (Hamill 1989: 33; Dowling et al. 1994: 149; Helms and Crowder 1994: 22; Logger and Vinke 1995: 145; Bonache and Fernandez 1996: 9).
Seventh, the compensation should facilitate reentry into the home country at the end of the foreign assignment (Stone 1986: 64; Crandall et al. 1991: 31). For example, Daniels and Radelbaugh (1991: 772) state that the problems with repatriation arise in three general areas: (1) personal finances, (2) readjustment to home-country corporate structure, and (3) readjustment to life at home. Depending on their compensation package design (and for example on their tax treatment, see e.g. Stuart 1991: 82), the expatriates and their families are used to a certain standard of living during their assignment and usually the repatriation includes changes in their situation. If the level of compensation during the expatriate’s assignment exceeds very markedly the level of compensation in the home country, the repatriation phase may a be very unsatisfactory situation from the compensation point of view. The program should also take into consideration managers' career needs after repatriation (Harvey 1993b: 62; Schell and Solomon 1997: 118; Stone 1986: 64). On the other hand, the existing evidence indicates that the reality which expatriates face does not match their career expectations (see Black 1992; Forster 1994; Stroh et al. 1998). Thus, the repatriation issues can be expected to be among the major difficulties of expatriates to be dealt with.
Finally, the program should offer ease of administration (Bonache and Fernandez 1996:15) and communication and provide sufficient data to human resource managers to reduce conflict between the organization and the managers (Harvey 1993b: 62).
All in all, various kinds of issues have to be taken into account when making decisions about expatriate compensation. On the basis of this review, cost reduction aims, information needs with regard to local context, equality challenge and repatriation issues appeared to be among the major difficulties related to expatriate compensation from the point of view expatriates.
Research on satisfaction with job-related factors has long traditions (see e.g. Locke 1976; Hulin 1991). Locke (1976) describes job satisfaction as a positive emotional state resulting from the appraisal of one’s job or job experiences. Within this literature, a difference has been made between intrinsic and extrinsic satisfaction (Naumann 1993). Intrincic satisfaction is related to work performance and feelings of accomplishment and self-actualization. Extrinsic satisfaction, on the other hand, is related to rewards received by the employer (i.e. recognition, compensation, and advancement). Research on job satisfaction includes the analysis of both antecedents and consequences of satisfaction. Within this framework, the analysis of satisfaction with expatriate compensation can be classified as a study which focuses on antecendents of one form of extrinsic satisfaction, i.e satisfaction with the compensation.
Very few empirical studies which have covered expatriates’ satisfaction with their compensation could be found in the literature review. What has been reported gives a picture according to which expatriates’ dissatisfaction with their compensation practices is very common (Black 1991). One of those few studies in which other empirical findings on problems related to expatriate compensation were reported was made by Harvey (1993a). In his study, Harvey reports, for example, that 80% of the expatriates found the achievement of equality in their salary in comparison with their colleagues to be a very significant problem and that 56% of the expatriates saw that compensation /benefit problems related to repatriation were significant. Still, studies of this kind do not identify how different elements in expatriate compensation packages influence the level of satisfaction, but rather identify contextual variables which may cause problems.
On the whole, the existing evidence on the difficulties related to expatriate compensation and antecedents of expatriate satisfaction with their compensation is very limited. Next, the focus will be shifted to research methods and the empirical analysis of these issues among Finnish expatriates.
In order to be able to collect representative data on the compensation of Finnish expatriates, it was decided to contact a Finnish union of university-level engineers. This guaranteed that the expatriates represented various types of organizations and branches of industry and thus the results do not describe the practices of a few very international companies only. Second, it was possible to bring together a clearly more extensive sample size than would have been possible otherwise. Third, the responses were received directly from the expatriates and not from the company representatives as in most compensation studies. On the other hand, homogeneity of the education background of respondents should be kept in mind when interpreting the research findings.
During the time of the data collection, the union had 1097 members working abroad. Due to the extensive number of respondents working around the world, a questionnaire survey was seen as the only possible data collection method. The questionnaires were sent to all the members who were working abroad. 10 questionnaires were returned to the sender due to an inadequate address. 448 responses were received and thus the response rate was 41%. This can be seen as a high response rate in comparison with the average number in international surveys. Of the respondents 147 had found a job abroad on their own and could therefore not be classified as expatriates, who are sent abroad by their employer. This so far not studied group of people working abroad on their own initiative deserves attention in future, but in the present study they were excluded since their compensation situation differs totally from that of the typical expatriates. For example, many of them are under local contract when they work in local companies. All in all, the responses of 301 expatriates were thus accepted for further analysis.
The questionnaire required first some background information related to the expatriates and their employers (see the tables below). The compensation section was started with questions about the predeparture contract-making situation (whether the company had clear expatriate compensation principles, whether the expatriates had enough information for signing a contract, and how difficult the situation was for the expatriates). After this, separate questions were asked about the major benefits and difficulties related to the compensation and there were some empty lines for written replies. Next, the focus was turned to the compensation package design (total salary-level, allowances/ bonuses, and insurance benefits). Eight types of allowances and seven types of insurances were specified in the questionnaire (see the results section). The selection of these was based on the literature review and on the experience of the union representatives with reference to the Finnish standards. Furthermore, an ‘other, what’ question was included in order to see if some other types of compensation elements were relevant also. With regard to holiday payments questions were asked about the length of paid holidays, holiday trips to the home country, and what kind of holiday payment principles were followed (home-country principles, host-country principes, not-paid-at-all, other). Next, the level of satisfaction with the compensation was measured on a 5-point Likert-scale. In the end, the respondents were asked about redesign needs and they were asked to give advice to future expatriates, again with empty lines for written replies.
Almost all the respondents were males (see Table 1). Although male-dominated samples are common in expatriate studies, here it is partly related to the educational background of the respondents since engineering is a highly male-dominated field. In other kinds of samples the proportion of females has been found to be higher in Finland - e.g. 22% in one study (Suutari and Brewster 1998). The respondents were typically 30-39 years old although there were respondents of all age categories. Due to the marital status of the respondents (88% of the respondents were married / in common-law marriage) and the fact that in Nordic countries both family members typically have a job, so-called dual-career families are more common in the sample than in most other expatriate studies. This might slightly influence results presented later. 58% of the respondents were on their first assignment and thus had no experience of expatriate compensation principles.
In Table 2 the sample is described on the basis of assignment-related variables. As can be seen from this table, the expatriates operated in various kinds of tasks although due to the sample, technical functions were more common than other task types. The expatriates also represented various levels in the organizational hierarchy, but typically they operated in managerial level positions (68% of the respondents). The length of the assignment also varied a lot but most common were assignments for two or three years. In every fifth case the contract was temporary and thus the length was unknown. In 94% of the cases the assignments were to Europe, North America or Asia.
The employer organizations were typically Finnish private companies or their subsidiaries (78%) and in almost every second case the companies employed over 15,000 employees (see Table 3). Still smaller companies were also well represented in the sample. The foreign host units in which the expatriates worked were typically relatively small employing less than one hundred people (48%) or between 101 and 1000 people (43%).
The results of the compensation package design and related opinions are presented describing the frequency distribution of responses on a Likert scale or yes/no -scale. In the analysis of the influence of each compensation package elements on satisfaction with the compensation, t-tests or Anova-analysis were performed. T-tests were used with regard to allowances and insurance benefits in which the response format was on the yes- /no-scale (i.e. existence of the element of compensation as an independent variable and the level of satisfaction as a dependent variable). In the case of salary-categories, vacation payment categories, vacation day-categories, and vacation travel-categories Anova-analysis was performed in a similar manner. Open-ended questions were analyzed by grouping the comments of the expatriates on the basis of the appearing themes. This was not a difficult job since typically the compensation-related comments were very concrete and easy to group into categories such as ‘accommondation-issues’ or ‘taxation-issues’. After this presentation of the methods of the study, the focus will be shifted to the research findings.
The results are presented in three subchapters following the identified objectives of the study. First, the expatriate compensation packages are described. Second, the major difficulties related to expatriate compensation are presented. In the last section, the results of the level and sources of satisfaction with compensation and on the related redesign needs are presented.
Expatriate compensation package design
Starting from the monthly salary of expatriates (see Table 4), the results indicate that variation in salaries is wide as one could expect on the basis of the extensive variation in assignment-related background variables. On average the expatriates earned 34,146 FIM (5,743 ECU) per month. This is almost twice as much as an average employee with a similar level of education earns in Finland. On the other hand, this comparison may not be fair since expatriates usually operate in key positions in foreign affiliates and thus on average operate in higher-level positions than typical employees in Finland.
When expatriates were asked to identify the allowances and bonuses which their compensation package includes it appeared that the housing allowance was the most commonly included allowance (see Table 5). Education, car / transportation and expatriate allowances were less commoly included in the expatriate’s compensation packages. Cost-of-living allowances and hardship allowances were included in less than 10% of the cases. When other elements were reported, they were for example vacation travel payments (see later analysis of vacation payments) or compensation for the lost salary of the spouse. Performance-based bonuses were also relatively common since 37% of the expatriates were under a performance-based compensation system. Seniority bonuses were rarely paid.
With regard to insurance benefits it appeared that the assignment insurance was the most common insurance benefit (see Table 6). Travel insurance, health insurance and accident insurance were received by about 40% of the respondents. Life insurance, retirement insurance and in particular unemployment insurance were less common. In those few cases where other insurances were reported, they were for example insurances of the family.
The following issue covered was the vacation payments (see Table 7). Almost half of the group did not receive any vacation payments. If such payments were received, the host-country principles were followed more commonly than Finnish principles. On average, the amount of paid vacation days was 28 days a year, but there was clear variation among the respondents. With regard to vacation trips the most common agreement was that one vacation trip per year was offered by the company.
Difficulties and redesign needs related to the compensation
Next, the focus will be shifted to the major difficulties related to the compensation and to the need of redesigning the compensation packages. As can be seen from the Table 8, five major difficulties appeared from the expatriates’ reports.
The most commonly reported experience was that taxation issues are complex and difficult to deal with. This is in line with the comments in the literature, but taxation is given a more central role than was expected. Usually such comments were related to the lack of clarity of taxation issues, constant changes in taxation principles and difficulties in getting any up-dated information about taxation. Expatriates stated for example that "there was not enough information available about the taxation principles" and "the interpretations of the taxation laws made by the public authorities vary a lot from case to case". Due to this situation, it was very difficult for expatriates to evaluate their real net income level. In order to cope with such complexities, the expatriates called for additional support from HRM-staff.
Almost as common as comments on taxation were comments with regard to difficulties in getting prior information about the local salary and cost of living level. For example, it was reported that "I did not know about the high local salary-level when I made the agreement", "the living costs were clearly higher than I expected", and "it was difficult to find any up-dated statistics about local costs and salary-level, and thus one had to rely on the estimates made by the company". These findings are again clearly in line with the picture appearing from the literature (i.e. information needs considering local context and equality issues). As a third major issue appeared problems with regard to currency rate changes that are difficult to estimate beforehand and still strongly influence the standard of living and the amount of savings. Expatriates reported for example that "salary payments in local currency are very risky from the savings point of view" and on the other hand that "payments in Finnish currency create a risk of losing the net value of the salary in local markets". In that way both the use of local or home-country currency creates its own problems.
As a fourth major group of problems appeared issues related to social security and pensions. The situation was described to be very similar to the case of taxation issues, e.g. the expatriates found it very difficult to get up-dated information about these issues, and did not always know where they should pay the costs (local versus home-country) and how much they should pay. Almost as common were comments on the spouse-related disadvantages such as the loss of the salary of the spouse during the assignment of the expatriate and the loss of his/her pension payment during that period of time. Due to these issues expatriates stated for example that "the loss of the salary of the spouse should be compensated by the company", and that "although my salary-level as an expatriate is relatively high, the family’s income-level is lower than in Finland". This is a typical dual-career challenge.
On the whole, the difficulties were mostly related to the maintenance of the standard of living and related information needs (e.g. taxation, local cost of living level, social security and currency rate risks). The equality issue appeared in relation to the local salary-level only. Tight compensation policies of the companies and repatriation challenges did not appear in the present sample. The former is clearly linked to the level of satisfaction reported later and the latter is probably related to the fact that the expatriates were still abroad and had not faced the repatriation challenges yet.
Satisfaction with the compensation
As a background question, which helps us to understand the predeparture situation of the expariates, expatriates were asked about the ease of their negotiations. The majority of the respondents (66%) reported that the company had clear compensation principles, which were followed when their contract was made, and that they had enough information available when they made the contract (63%). In addition, about half of them (49%) reported that it was very easy or easy to make the contract. Only 24% reported that is was difficult or very difficult. All these figures are in contrast to the picture of the complexity of expatriate compensation which appeared from the literature review, i.e. the majority of the companies did have clear compensation policies and the expatriates felt that the agreement situation was not difficult for them.
In line with this,
the present findings on the level of satisfaction are in clear contrast to earlier
findings: only 12% of the respondents were very dissatisfied or dissatisfied
with their compensation contract as a whole. The clear majority were either
satisfied (48%) or even very satisfied (16%) (see Table 9).
When expatriates were asked about the major benefits which their compensation packages offer, they saw three major benefits (see Table 10). First, the lower level of taxation was seen as a clear benefit for Finnish expatriates since the Finnish level of income taxation is among the highest in the world. The taxation issue is thus one of the factors which explain the high level of satisfaction of Finnish expatriates in comparison with findings elsewhere. The other very commonly reported benefit was the high basic salary-level in comparison with the home-country salary-level. In cases where this was combined with a lower taxation level, the net income level could be clearly higher than in Finland. As a third group of benefits was classified comments considering the existence of allowances / premiums. Most commonly issues such as a car benefit and free accommodation were mentioned.
Next, the relationships between each compensation component and the level of satisfaction with the compensation package were analyzed (see Table 11). The results indicated that only two elements of the compensation package had a significant relation to the satisfaction expressed: the total salary-level and the existence of a car / transportation allowance. This is in line with the findings on the previous open-ended question, but there the key role of taxation appeared as well. With regard to the importance of the total salary level, the finding could be interpreted by taking the point of view of the expatriate who may see that it is not important what are the elements behind the total salary level. For him or her it is just important to have the necessary amount of money to use for necessary costs and savings. Thus, the expatriate with few allowances but a high enough income level, can take care of related costs and insurances by themselves.
Still, it is interesting that so few variables were found to be clearly connected with the level of satisfaction. One possible interpretation of this is that the total salary-level and the car allowance may be the two most easily recognized and tangible variables in the compensation package. On the other hand, on this basis one could have expected that the housing allowance would also have a more significant impact. Furthermore, this was in fact often mentioned in the earlier open-ended question. Still, it seems that issues such as insurance benefits are not considered as equally important ones. On the other hand, this situation might be different if we could analyse separately the level of satisfaction among those who have benefited from the insurance benefits such as accident or travel insurances.
With regard to the importance of just car allowance rather than other allowances, another fact that might be reflected in the findings is the very high level of car taxation in Finland in comparison with average European standards. For example, there are expectations of lower taxation in Finland due to Finland’s membership in the EU and the related harmonization pressures. Still, the costs are very high at the moment and thus a car is a high status symbol in Finnish society. This may have created a situation in which a car benefit (and the included possibility of having a clearly better quality car with the same costs abroad) very clearly influences the level of satisfaction. Thus, we could expect different findings from other countries with a lower level of taxation.
The expatriates were also asked to specify any elements of their compensation package with which they were not satisfied. As can be seen from Table 12, such redesign needs varied a lot from case to case since various kinds of issues were reported. Even the most frequently mentioned issue was only mentioned 20 times (i.e. by 7% of the respondents). The high level of satisfaction with compensation is the other issue that naturally influences these low percentages. Although the redesign needs were not as commonly faced as was expected, the results are worth-while presenting briefly since they indicate more specifically the issues that should be looked at more carefully when making compensation agreements.
The most common comment was that the total salary-level should be higher. This is in line with the findings of the previous analysis of the determinants of satisfaction with the compensation package. When expatriates had specified further the reason for their dissatisfaction it was usually the higher local salary-level than they expected. A few comments appeared also with regard to the high level of local living costs and tight company compensation policy. The first allowance issue which appeared was the compensation of travel costs. Insurance benefits and repatration arrangements were mentioned by eleven expatriates. Expatriates reported issues such as "the repatriation issues should be more clearly defined in the contract", and "the company should guarantee at least a position and a salary of the same level after the assignment as before it". The expatriates were thus already worried about the repatriation although they might not yet have been familiar with the commonly reported difficulties related to that phase (see e.g. Black 1992; Black and Gregersen 1999: 60; Forster 1994).
The spouse-related issues ranked as the next on the list. For example, there were issues such as "the spouse’s education costs should have been covered by the company", and "the company should also have arranged the work permission for the wife". This kind of support practices have been recommended for dual-career couples (Harvey 1998; Pelligo and Stroh 1997; Reynolds and Bennett 1991). Nine expatriates saw also that their salary should depend more on the results which they achieve and thus called for performance-related bonuses. The reported need for a currency protection agreement with the company is in line with the problem of currency rate changes reported earlier. This kind of agreement has been widely discussed in the literature (Dowling et al. 1994: 159; Helms and Crowder 1994:27). Accommodation related comments were typically such as "the accommodation allowance should have been included in the compensation package", and "the negotiated housing allowance does not cover the real costs". The children-related comments called for better child-education allowances or support for day-care costs. Since taxation was experienced as such a problematic issue, as was reported earlier, there were also demands for more taxation guidance from the company.
The present study aimed to increase our understanding of the challenges related to expatriate compensation. The first objective was to describe the compensation package design of Finnish expatriates. The results indicated that the average total salary-level was about the double in comparison with that of their average colleagues in Finland. On the other hand, the tasks are typically more challenging during international assignments and thus the salary-levels are not easy to compare. Furthermore, there was a wide range of salary levels. Most typical benefits were the housing, education, and car / transportation and expatriate allowances. Insurance benefits were also commonly offered. Vacation payments varied a lot from case to case, but in every second case they were not paid at all.
The major difficulties were caused by taxation issues, availability of information about the local salary and cost-of-living level, currency rate fluctuations, social security and pension issues, as well as spouse-related issues. These empirical findings considering the major difficulties gave support to the picture given in the literature.
The level of satisfaction with the compensation was clearly higher than could be expected on the basis of earlier research findings. Similarly, the majority of the Finnish expatriates reported that typically their companies had clear compensation principles which were followed, that they had enough prior information about the compensation issues, and that the contract-making was thus a relatively easy task for them. This presents the picture that in the present sample the companies had relatively developed expatriate compensation practices. On the other hand, the high level of development of expatriate management practices in Nordic countries in comparison with findings elsewhere has been reported elsewhere also (Suutari and Brewster 1998). The taxation treatment, the total salary-level and the car / transportation allowance were found to have the clearest influence on the level of satisfaction. The compensation elements with which the epatriates were the least satisfied varied a lot from case to case, but the findings still provided empirical support to the issues mentioned in the literature. On the other hand, such issues were not as commonly reported as was expected. At the top of the list was the total salary-level and other issues metioned more than ten times included travel costs, insurance benefits, repatriation arrangements and spouse-related payments.
The present research findings have several implications for future expatriates and international companies. At the end of the questionnaire the expatriates were also asked to give advice to future expatriates for contract negotiations. The most commonly given pieces of advice can be seen in Table 13. As can be seen from the table, these pieces of advice neatly sum up many observations of the study although some new issues appear as well.
Clearly the most common piece of advice was related to the need to seek up-dated information about the local situation so that the expatriate knows what kind of standard of living can be achieved during the assignment. It was stressed that one should also try to identify any local tax payments or other similar costs that do not exist in the home country. The importance of taxation issues appeared here too. Several expatriates commented also that it is easier for the expatriate if he/she can negotiate about the net salary and thus leave the taxation problems to the company. Earlier expatriates were mentioned as the best source of information. The necessity of making a detailed written contract before the departure was also stressed. Expatriates’ comments included for example recommendations such as, "insist that all details have to be in a written contract" and "do not rely on verbal agreements - the responsible persons in the company may leave and thus you have no agreement".
A common experience was also that one should insist on a high enough level of compensation. It was commented that one should not look at the salary from the point of view of one’s earlier salary but instead from the point of view of other expatriates and local managers. For example, the typical salary level in managerial positions varies a lot across countries and in some cases the expatriate has found that his subordinates earn more than he/she. This again leads us to the challenge of inequality, as discussed earlier. The repatriation arrangements should also be specified in the contract. It was commented that in addition to specifying the position after the repatriation and repatriation costs one should negotiate about the situation if one decides to return before the end of the assignment. The importance of thinking not only of the expatriate but looking at the issue from the point of view of the family economy as a whole in contract negotiations was stressed as well. Also the need for checking that the insurance covers enough was pointed out by ten expatriates.
When these pieces of advice and other observations in the study are analyzed from the HRM point of view, it appeared that in the majority of the cases the companies had already been able to create relatively satisfactory compensation policies from the point of view of expatriates. With regard to major challenges faced by the expatriates, one of the key issues is to have updated information about the local context. Furthermore, the HRM-representatives should be able to help with taxation issues or at least know the authorities where up-dated information is available. The same is true of social security and pension issues. The family situation should be carefully taken into account and, furthermore, the expatriates should be at least advised about the currency rate risks involved. The repatriation arrangements should also be planned as well as possible in advance so that the expatriate doesn’t have to worry about his or her future.
In future studies, it would be interesting to test the present findings with samples from other European countries. For example, the high level of satisfaction among Finnish expatriates in contrast to earlier findings was such an unexpected finding that it would be useful to test in other European countries. For the same reason, it would be worth while to study the expatriate compensation policies and practices of companies through company case studies. This would give us a company point of view of the complexities, difficulties and trends related to the expatriate compensation practices. Second, we would get a picture of the practices that companies have used to deal with such challenges as well as they seem to have done in the light of the present findings.
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