RECENT TRENDS IN MOBILITY: REFLECTIONS FROM MERCER’S THOUGHT LEADERS A COLLECTION OF WHITE PAPERS

“Businesses and markets are dynamic, and the best mobility programs should also be able to change in response to market changes, talent availability and business needs.”

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OVERVIEWWe are living in a time not only of economic upheaval but of hyper-connectivity, rapidly changing demographics, and macro-level shifts in migration patterns. These factors are beyond the control of the Human Resources personnel who need to manage their globally mobile workers, but they can have profound effects on who compa-nies choose to send abroad, for how long, and how to remunerate those expatriates. And those changes may emerge sooner rather than later.

In this anthology, we present articles by some of our thought leaders in global mobility. They examine (a) the special issues that presented by “difficult” locations, (b) the difficulty in piecing together a coher-ent payroll administration program, (c) the special communication needs of a globally mobile workforce and (d) the latest trends in pro-viding benefits to expats. We hope that the insights in these articles inform how you manage your own workforce in the coming months.

TABLE OF CONTENTSManaging Expatriates in Difficult Locations: Optimizing the Global Mobility Investment pg 4

Solving the Payroll Puzzle for International Assignments pg 11

Effective Communication Strategies to Maximize Talent Mobility Objectives pg 16

Talent Mobility: Expat Retirement and Healthcare Trends in International Assignments pg 21

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MANAGING EXPATRIATES IN DIFFICULT LOCATIONS: OPTIMIZING THE GLOBAL MOBILITY INVESTMENT

Abstract: Before companies source talent internationally, they need to understand the basic philosophy for incentivizing assignments. With the dramatic rise in global business activity, establishing global mobility premiums that maximize the investment in expatri-ate talent is critical to success.

As the world becomes ‘flatter’, the development of skilled expatriates who can manage operations abroad becomes ever more vital to the health of a company. Despite the rise in this activity, many international assignments fail. Ed Hannibal, Mercer’s Partner and Leader of the Global Mobility business for North America, examines some of the chal-lenges multinationals face in establishing incentive premiums for assignments in difficult locations, ones that harmonize with business needs and the expectations of assignees.

Drawing on data from Mercer’s Location Evaluation Reports, Ed addresses trends in future mobility and incentive compensation and discusses the areas considered out-side of the mobility program, as he explores the management of future and incentive compensation.

By Ed Hannibal, Partner, North America Global Mobility Practice Leader, Mercer

Motivating and managing talent can be challenging for any company. But the difficulties are compounded when played out in the interna-tional arena, especially in difficult locations. With the dramatic rise in global business activity, many multinationals are sourcing talent worldwide to access new markets and gain competitive advantage, deploying workers outside their home countries. Despite the increase in global talent sourcing, many international assignments fail, either due to poor family adjustment, misaligned incentives, dif-ficult living conditions or poor cultural fits.

To manage the high cost of global assignments and limit the risks, multinationals must develop a strategic framework of compensa-tion, incentives, and training. In fact, many companies are making their global talent strategy an integral part of their overall work-

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MANAGING EXPATRIATES IN DIFFICULT LOCATIONS: OPTIMIZING THE GLOBAL MOBILITY INVESTMENT

force plan. Within this framework, getting the mobility incentive premiums right is critical to meeting the business needs of the company as well as the expectations of the assignees.

REBRANDING THE PROGRAM, WEIGHING THE COSTSIn developing a globally mobile program, companies must consider the basic philosophy for incentivizing foreign assignments. Are mobility and incentive premiums enough? Is it necessary to also offer quality-of-living and hardship allowances? Are cash incentives the only attraction or are there other selling points such as career devel-opment and personal growth that can be used? Understanding the overall compensation philosophy within the total business context will help a company meet its long-term business and talent needs.

So what is a global mobility premium, exactly? A global mobility premium is a financial incentive to motivate and reward someone for international service and to provide a monetary benefit to help compensate for cultural, family and work inconveniences associ-ated with a global assignment. The premium can be paid monthly or in a lump sum.

From a compensation perspective, there’s a hard side and a soft side to premiums. The hard side, in terms of something tangible, takes a look at the actual difficulty of living in a foreign country, especially in places that are dangerous or isolated. The soft side, what is known as “foreign service” issues or the more difficult HR issues – things that hard to quantify, such as being uprooted, potential loss of job oppor-tunities in headquarter locations and a lack of language and cultural knowledge of a host country − covers specific allowances for interna-tional assignments.

ON THE MOVE: THE WHO AND THE WHEREFor the past 12 months, Mercer’s clients have been requesting more information on new home countries. The largest request has come from Egypt and Ukraine, followed by Vietnam, Saudi Arabia, Bulgaria, Morocco, Serbia, Estonia, Nigeria, Ivory Coast, Slovenia, Cameroon, Cyprus, Jordan and Lebanon. Undoubtedly, there are other nationalities from which companies are sourcing talent.

In sourcing talent worldwide, the top 15 subscribed-to host loca-tions that Mercer provides to clients include Shanghai, Singapore, Hong Kong, Bangkok, London, Beijing, Tokyo, Paris, Seoul, Dubai, Jakarta, Taipei, Sao Paulo, Kuala Lumpur and Brussels. Many of these cities, such as London, Brussels, and even Shanghai, are con-sidered plum assignment locations, so organizations may not need to provide any incentive premiums. For others, they may need to provide incentive premiums to drive talent to these locations. And then there are locations that companies need to watch carefully because of natural, social or political instability. For example, in

THE 10 MAJOR QUALITY-OF-LIVING FACTORS

1. Political and social environ-ment

2. Economic environment

3. Socio-cultural environment

4. Medical/health consider-ations

5. School and education level

6. Public services and trans-port

7. Recreation

8. Consumer goods

9. Housing

10. Natural environment

Some of the key drivers of inter-national talent sourcing include skills gaps in international loca-tions, management develop-ment, technology transfer, senior management role and training. Primary compensation design decision drivers include operational need, cost, motiva-tion to accept the assignment, deploying key/core competitive resources, administrative sim-plicity and equitable treatment.

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Seoul, South Korea, concern about the buildup of arms to the north casts a shadow of danger on the southern part of the country, where assignees may be working. So a quality-of-living or a hard-ship allowance may be needed to attract talent to this area.

According to Mercer’s 2012 Worldwide Survey of International Assignment Policies and Practices, 59% of European companies said they provided an incentive premium, with a lowe percentage (48%) for companies worldwide. (The Survey has been running since the 1950s and is the largest survey in the industry, used by multina-tional employers to benchmark their programs.) These numbers were lower than those provided in the previous survey cycle (2010), when 63% of companies, both within Europe and globally said they provided a premium. We know from several of our Euro-pean clients that, throughout the economic downturn, the incen-tive premium was the one area they wanted to trim.

Some attendees at Mercer’s April 2012 EMEA Expatriate Manage-ment Conference indicated that they had eliminated incentives, viewing assignments as opportunities for advancement and as part of fulfillment of general business needs. These companies had effectively blurred the line between host and home countries, clas-sifying international assignments as a win-win proposition.

In reviewing an organization’s development policy, Mercer notes that some organizations pay incentives as an ongoing element. In calcu-lating incentives, 55% of European companies and 63% of compa-nies worldwide said they paid incentives as a percentage of base salary.

Mercer also looked at incentive premiums from a lump-sum per-spective at the beginning or end or possibly at both ends of the assignment. Since cost savings is top of mind for many employers, some have considered capping incentives for midpoint director or executive levels. One conference attendee indicated that her com-pany had cut mobility premiums altogether because they assumed that people understood the nature of working in a global environ-ment and expected to relocate at some point in their careers. But she noted that her company now places more emphasis on family needs than they did in the past. A spouse may not be so eager to dutifully move to a foreign location without some assurance that critical family issues will be addressed. Family satisfaction can be a real deal breaker, so her firm has redefined incentives as “family friendliness” funds.

Regardless of where they are posted, the spouse and family are integral players in a global assignment, and employers should con-sider their needs carefully. Evaluating the candidate for foreign assignment as well as the family’s capability and willingness to adapt to a new country will help ensure overall retention and suc-cess in a location.

TOP NEW LOCATIONS FOR SOURCING TALENT

Based on data collected by Mer-cer over the past two years, demand for expatriates from the following loactions is growing:

1. Egypt

2. Ukraine

3. Vietnam

4. Saudi Arabia

5. Bulgaria

6. Morocco

7. Serbia

8. Estonia

9. Nigeria

10. Ivory Coast

11. Slovenia

12. Cameroon

13. Cyprus

14. Jordan

15. Lebanon

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EVALUATING DIFFICULT LIVING CONDITIONSMany mobility programs have a quality-of-living or hardship-allow-ance component. These allowances are typically an ongoing pay-ment to compensate for adverse conditions, such as additional leave travel, emergency evacuation plans or security issues.

According to Mercer’s survey, in 2012, 85% of companies worldwide who have expats in hardship locations paid hardship premiums, with many companies keeping a close watch on locations to see whether hardship issues have declined and whether management has already factored these concerns into the incentive premium. For example, in Shanghai, where one has access to international credits, phones and communication channels, a company may not have to offer hardship allowances.

TOOLS OF THE TRADEMercer has developed two tools to help companies formulate hard-ship allowances: Location Evaluation Reports (LERs) and the Quality of Living Index. These tools are meant to be used based on a com-pany’s quality-of-living policy and to provide a platform for asking key questions. Should the policy be looked at from a home-to-host perspective or a host-location only, irrespective of the nationality someone is coming from? The LER methodology uses 14 factors to evaluate living conditions for expatriates and their families. The factors − disease and sanitation; political and social environment; climate and physical conditions; crime; medical facilities; political violence and repression; infrastructure; physical remoteness; pollu-tion; availability of goods and services; housing; communications; cultural and recreational facilities; and educational facilities − are rated on a scale from best to worst. Each factor is weighted, with the overall score translated into a hardship premium as a percent-age of base salary. This profile can then be shared with line manag-ers or assignees. Even if the hardship premium is just 15% for a traditional assignment to a difficult location, you may be looking at a 55% or more overall premium for an assignment.

Some employers prefer to look at the incentive premium from a home-to-host perspective. Mercer’s Quality of Living Index lets you compare cities and set hardship allowances for your internationally mobile workforce. The Index looks at 10 major quality-of-living fac-tors: political and social environment; economic environment; socio-cultural environment; medical/health considerations; schools and educational level; public services and transport; recreation; consumer goods; housing; and natural environment.

Take the example of Berlin, the home city, and São Paulo, the host city (see chart on pg 8). In comparing these two cities, Mercer’s score indicates that the overall quality of living in São Paulo is lower than that of Berlin. So Mercer would recommend a quality-of-living allow-ance of 17.5% of annual gross salary.

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* Index CategoriesBase City

BERLIN (DE)Host City

SAO PAULO (BR)

Political and social environment 54001

Economic environment 08001

Socio-cultural environment 57001

Medical and health considerations 36001

Schools and education 08001

Public services and transport 67001

Recreation 98001

Consumer goods 99001

Housing 48001

Natural environment 211001

001 XEDNI LATOT 70

Mercer Recommended Quality of Living Allowance is % of the annual Gross salary. 17.5

28/02/2013http://genwdhost1/ghrmStaging/qolRes.php

MERCER QUALITY OF LIVING INDEX RESULT MERCER INTERNATIONAL BASKET, SEPTEMBER 2012 SURVEY

In drilling down into the medical and health considerations, we see that São Paulo has modern, private hospitals and clinics that offer good services. But in cases of more complex illnesses, Mercer’s report would recommend seeking assistance in a country with higher medical standards.

Some companies are focusing to market. They may take away pre-miums, but if there are specific markets they need to drive talent to, they would use the 15% expatriate allowance to motivate peo-ple to take assignments there.

We’ve seen a growing trend over the past 10 years, especially among US multinationals, to replace the incentive premium with a “family allowance” or an international support fund − essentially, money ear-marked for family members to cover all of those exceptional requests. The allowance may cover the individual who has responsi-bility for a sick family member, providing, say, 5% of salary, paid out directly or with receipts. Or it may cover that extra computer or travel allowance for family members to visit. General Electric introduced this concept some 15 years ago, and many organizations have adopted this policy since then.

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Some companies look at “spendable” income and the differentials between family size vs. individuals. But as one conference attendee said, “You always have to look at the base from which you are calcu-lating. There’s no clear data on whether you take the gross or the net. And from a cost perspective, should you really differentiate premiums based solely on income? After all, a family of four will have different needs than an individual, whose needs would pre-sumably be lower.”

Some companies calculate premiums based on spendable income and family size. In countries where the danger level or living condi-tions may worsen, Mercer advocates recalculating incentives to stabilize the assignment and keep people interested in remaining in the location.

Regardless of the formula used to arrive at an allowance, it is important to evaluate the total picture of the incentive, bench-mark your programs and determine whether financial adjust-ments need to be made.

BACK TO THE FUTURE: INCENTIVE PROGRAMS FOR 2015 AND BEYONDIn reviewing your mobility program, it’s important to think critically and holistically. Determine whether it’s necessary to assign premi-ums to the full population of expatriates. Determine whether an employee will move without a bonus. Ascertain whether the individ-ual needs to have a cash incentive to accept an assignment. Identify the opportunity and potential for career advancement of an assign-ment. Determine whether a mobility premium is needed to drive tal-ent to a specific location, along with a hardship allowance included for difficult locations.

As companies realign their talent model, differentiating global mobil-ity policies is imperative. Look at the development value and the business value based on the four key areas in Mercer’s talent and rewards framework:

•Emerging/high-potential talent

•Strategic business leaders

•Career-building volunteers

•Seasoned technical experts

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40%N=26510%N=120

Seasoned Technical ExpertsProviding specialist skill/expertise to fill local

gap or to complete a specific project/task

Career-building VolunteersInt’l experience to fulfill personal objectives

(opportunistic, employee-driven moves)

40%N=27020%N=215

Strategic Business LeadersFill mission-critical roles and deliver specific, strategic business results

Emerging/High-potential TalentInt’l learning/ development to grow

next generation of leaders

17% have a specific policy for this category12% have a specific policy for this category

40%N=26510%N=120

Seasoned Technical ExpertsProviding specialist skill/expertrr ise to fill local

gap or to complete a specific projo ect/task

Seasoned Technical ExpertsProviding specialist skill/expertise to fill local

gap or to complete a specific project/task

Career-building VolunteersInt’l experience to fulfill personal objb ectives

(opportunistic, employee-driven moves)

Career-building VolunteersInt’l experience to fulfill personal objectives

(opportunistic, employee-driven moves)

19% have a specific policy for this category18% have a specific policy for this category

40%N=27020%N=215

Strategic Business LeadersFill mission-critical roles and deliverspecific, strategic business results

Strategic Business LeadersFill mission-critical roles and deliver specific, strategic business results

Emerging/High-potential TalentInt’l learning/ development to grow

next generation of leaders

DEV

ELO

PM

ENTA

L V

ALU

E

BUSINESS VALUE

SEGMENTING ASSIGNEES: FOUR-BOX MODEL CURRENT ASSIGNEES BY CATEGORY (NORTH AMERICA; MEDIAN VALUES)

And don’t forget to look at incentives that fall outside of the mobil-ity policy. Defining what is a mobility-related issue and what is a compensation issue will help clarify your position.

Even though domestic economies around the world may be slow in recovery, we’re seeing more and more clients investing globally. The old model of “one size fits all” no longer works. Businesses and markets are dynamic, and the best mobility programs should also be able to change in response to market changes, talent availability, and business needs. Keep in mind that broader compensation issues cannot be addressed by a mobility program.

HARNESSING THE FULL POWER OF A GLOBAL MOBILITY PROGRAMI hope this article has provided direction on how organizations can maximize their talent search and global mobility investment as well as insights into incentivizing candidates, especially in difficult loca-tions. By developing a mobility incentive program that is part of an overall workforce plan, companies will be better able to determine the business value of different types of international assignments and develop the next generation of business leaders to help them meet their current and future talent needs.

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SOLVING THE PAYROLL PUZZLE FOR INTERNATIONAL ASSIGNMENTS

Abstract: One of the most difficult components of an expatriate compensation strategy is managing the payroll function. Payroll administration, in and of itself, is complex, involving many processes and activities. But across borders, this critical function becomes a kaleido-scope of people, places and plans, making it extremely complicated, expensive and time-consuming. Multinational companies face many puzzling tax and payroll issues, and often the strategic HR management that is needed to navigate these areas is sorely deficient. The key to harmonizing business objectives with assignees’ expectations is to first under-stand your company’s needs. Doing this will help you control costs, avoid liabilities and ensure that assignees receive accurate and timely pay and enjoy a satisfactory assignment experience. In this article, we cover some of the critical issues governing expatriate payroll administration, providing a roadmap of challenges and solutions.

By Roger Herod, Principal, Global Mobility, Mercer

While deciding on an expatriate compensation strategy may be rel-atively straightforward, managing payroll for expatriates is any-thing but. Regional complexities surrounding employment laws, local benefits and tax regulations can be particularly troublesome when operating internationally. Payroll administration, in and of itself, is complex, involving many processes and activities. HR must capture the right data, control and update it, calculate salaries, determine allowances and deductions, and comply with legal regu-lations. This critical function becomes a kaleidoscope of people, places and plans across borders, making it complicated, expensive and time-consuming. Ideally, the best systems harmonize business needs and objectives with assignees’ pay delivery expectations in an efficient, cost-effective manner that avoids liabilities and ensures that assignees receive accurate and timely pay and enjoy a satisfac-tory assignment experience.

Why is managing payroll across borders so hard to get right? To begin with, rules governing taxes in different countries are com-plex, and compliance and reporting obligations can be confusing,

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with steep penalties for non-compliance. Typical balance sheet ele-ments such as hypo taxes (tax equalization) and housing norms often do not fit traditional local payroll systems. Cultural and social factors may also affect payroll decisions. What may be taxable and reportable in one country may not be in another.

Capability issues are another concern. Most local payroll depart-ments and providers are not trained to deal with the complexities of expatriate pay. And while some companies use salary-split systems, in which funds are paid to assignees from both home- and host-country payrolls to help avoid exchange rate fluctuations, this arrangement can overload payroll systems, especially if home and host countries are not on the same pay frequency. Lack of technol-ogy specifically designed for global pay delivery and tracking of payments can be another issue.

Most expatriates receive a combination of their pay and allowances in both their home and host countries. But if companies don’t have a solid understanding of reporting requirements, compliance prob-lems can quickly become “bad news” for the company. Having tax providers track down payments to expatriates is costly, as is having to file revised tax returns.

DRIVERS OF PAYROLL CHALLENGESThe first step in establishing a secure, reliable payroll system is evaluating your company’s needs and objectives. Start by identi-fying the types of tax programs needed – tax-equalized, localized, or host-based – as well as the types of assignees you have – short-term, long-term or business travelers. Then determine whether your compensation program is global, regional or multitiered, and whether compliance is governed by visas, business permits or local activity.

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THE CHALLENGES

TAX AND COMPENSATION CONSIDERATIONSMultiple tax and compensation programs may figure into your cal-culus. A payroll may have two inbound expatriates with different programs, compounded with multiple compensation elements. For example, a local payroll may have 200 elements, with expatriates adding 30 or 40 more elements. Throw in erratic additional com-pensation items, such as benefits in kind, which may be added inconsistently, and off-cycle payments, and you can face an organi-zational and computational nightmare. Plus, additional non-stan-dard reporting may be required – monthly, year-end and ad hoc queries – further complicating compensation administration.

PAYROLL ACCESSExpatriate payroll specialists may not have access to available data, such as compensation updates, relocation payments, corporate payments, taxes and benefits in kind. Yet it’s critical that company data be accurate and complete, with no duplication, and that pay be in the proper currency. Timeliness is another challenge, with responsibility for ensuring that taxes are filed in the correct year and that the information is complete and supports compliance.

TAX AND COMPENSATION POLICIESOne of the biggest hurdles is the major differences in tax policies between countries. Often, compensation elements are poorly defined leading to ambiguities in tax reporting and tax treatment of expatriate payments and allowances. With increased scrutiny from international tax authorities, reporting and compliance obli-gations can be hard to meet, with steep penalties imposed for non-compliance.

Inconsistent compensation policies are another challenge. Com-pensation elements are loosely used in payroll systems – that is, automobile (allowance or company paid) in home and host. There may also be multiple compensation programs in each country, mak-ing deployment of workers difficult; for example, employees transi-tioning from the United States to Germany would be treated differently than employees moving from Japan to Germany or from the United Kingdom to Germany. And each employee has a unique set of requirements.

LACK OF EXPERTISEMany payroll departments simply lack the expertise to deal with expatriate payrolls. They may have limited exposure to expatriate payroll needs or may not have solid experience in how local payroll practices apply to expatriates. Concepts such as hypothetical tax and norms and how they relate to local tax calculations can be dif-

INTERNATIONAL PAYROLL MANAGEMENT FACTORS:

•Payroll frequency – weekly, monthly, biweekly

•Third-party deductions – taxes, benefits, contributions

•Time and attendance requirements

•Working hours

•Benefits

•Types of employment contracts

•Legislative changes and regulations

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ficult to grasp. There may also be system constraints in setting up tax matrices. Turnover of staff can be another issue, with the need for companies to retrain local personnel to provide the necessary specialized expertise.

NAVIGATING A SEA OF DETAILSTo address the full complement of payroll administration issues and avoid unnecessary complexity, protocols should be created to make necessary data available so it can be controlled. Once this is done, establishing reporting intervals and minimizing the differences in compensation and tax policies will help ease the process. Also, make sure that your payroll specialists are well trained and can con-duct necessary audits. Some companies decide to handle payroll internally; others outsource this function.

Some internal solutions include:

•Setting up a Global Employment Company (GEC)

•Setting up separate legal entities for each home/host location

•Managing payroll centrally in headquarters location

•Separating tax calculations from cash disbursements

External solutions include:

•Using relocation providers to support some administration

•Outsourcing complete payroll processing

Typical client objectives for companies using an external approach include:

•Providing consistent protocol globally

•Clarifying the processes

•Ensuring that best practices are always being reviewed

•Using consistent approach to tax reporting

•Providing payroll expertise

•Reducing the concern of turnover of internal payroll staff

•Improving compliance

•Integrating with all client payrolls

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Outsourcing expatriate compensation pay delivery is still a rela-tively new phenomenon, but there is an increasing demand for the type of international payroll solutions offered by companies such as Celergo and Expaticore.

CREATING A SEAMLESS PAYROLL SYSTEMEffective international payroll administration is a mission-critical function. Any disruption in the payroll process could trigger unfore-seen expenses, such as fines potential lawsuits from employees or regulatory agencies. Whether employers decide to outsource this function or handle it in house, establishing a payroll administration strategy upfront will help to address the critical data tracking pro-cesses and wage and tax reporting requirements essential for a smooth operation, allowing them to effectively budget expenses, avoid risks and penalties, and expand their global footprint.

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EFFECTIVE COMMUNICATION STRATEGIES TO MAXIMIZE TALENT MOBILITY OBJECTIVES

Abstract: Maximizing the global mobility investment can be difficult, with numerous stakeholders with sometimes-conflicting goals. But one thing is certain: To be successful, a mobility program must be strategically understood and marketed, and it must be a collab-orative effort, addressing the needs of all stakeholders. In this article, Steve Nurney shares his insights and experiences in applying effective communication strategies to achieve tal-ent mobility objective.

Mining global talent is a complex undertaking and an essential one for multinationals that want to build a global footprint and fuel inno-vation and growth. Despite the perceived value of mobility programs, employers still struggle with positioning the program strategically within the company’s overall workforce and talent management plan and with communicating its benefits.

Whether expanding into an emerging market or a developed one, most employers competing in today’s global economy need to nurture a mobile workforce. Of course, the concept of a mobile workforce is not new. While the processes of international integration may be mod-ern, companies and nations have been deploying workers overseas for hundreds of years. While global mobility programs seem to be matur-ing today, with talk about moving people across skill sets, jobs, and locations, some gaps still need to be closed. What is needed is a holis-tic approach that links talent to business needs, business needs to communication, communication to performance, and performance to results – ensuring that the right people are in the right places and the right roles at the right cost for the right length of time.

By Steve Nurney, Principal, Leader of US Global Mobility Center of Excellence, Mercer

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Aligning business strategy with talent and performance, and market-ing the global mobility program for maximum impact is ever more urgent. To accomplish this, management must collaborate with HR, supporting policies and resources and aligning incentives among stakeholders for programs to function strategically. Central to this effort is developing an effective communication strategy, to keep talent informed and satisfied and keep business objectives front and center.

COMMUNICATING THE VALUESo how does an employer promote the mobility program to attract the right talent and achieve business objectives? By marketing the value of the program, keeping the process simple to engage all employees, and driving actions to achieve results. Through frequent, clear and effective communication to all stakeholders, assignees and potential assignees will understand what an assignment offers them professionally and personally as well as financially, and HR and man-agement will understand their roles in realizing the company’s goals.

Cultural norms vary from country to country, and performance benchmarks are not consistent across borders, but assignees still need to understand their goals and responsibilities. By fleshing out the total mobility picture, including compensation, incentive, train-ing, career advantage, cultural concerns, learning opportunities, compliance and regulatory issues, and repatriation details of the assignment, employers can better attract and engage assignees.

After all, taking an international assignment involves a significant commitment from candidates and their families, and a significant cost to the employer, so trust and transparency are vital.

LISTENING UPTo optimize awareness of global assignment issues, employers should communicate often with assignees and encourage feedback. As you know, “talking” and “communicating” are different things. Talking provides information; communicating ensures that the lis-tener understands what you’re talking about.

In speaking with clients and assignees, Mercer has discovered some recurring issues related to managing global mobility programs: Some employers indicate that their assignees continually complain about their compensation packages, even when offered more money; oth-ers note that assignees are bothered by no or inadequate communi-cation when changes are made to their compensation packages; some employers are puzzled about how to properly communicate policy changes. And in companies that have undergone major reor-ganizations, many employers aren’t sure just about how to communi-cate new roles.

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FEEDBACK FROM THE FRONT – EXPAT OPINION SURVEYSSoliciting feedback from your current and past assignees about their mobility program experience might lead you on the right path. In a recent survey of one large multinational company’s US outbound assignees, Mercer sought to determine assignees’ levels of satisfac-tion with their mobility experience. The survey included questions related to policy, the compensation package including changes to the package, and other issues. Results revealed an interesting, if somewhat problematic, picture. In the area of policy clarity and understandability, 69% of assignees reported satisfaction, with 27% indicating dissatisfaction. For overall compensation package and for perceived benefit to careers, employees indicated high levels of satis-faction, 83% and 81%, respectively. But in rating the employer’s repatriation plan, 89% of respondents said they were dissatisfied. And when asked about whether changes in mobility packages were explained adequately, 54% of respondents said they were satisfied, with 40% indicating they were not.

Based on the findings, the company took several actions. To support the introduction of new assignment policies, the company revamped its policy documentation to improve usability and assignee under-standing, provided extensive communication materials to current assignees and stakeholders about the implications of the new policy, provided easy access to policy documents and communication mate-rials through its corporate portal, and introduced custom reports explaining changes in compensation packages.

SMART MARKETING: FROM AWARENESS TO ACTIONMost employers want to reduce the costs of their mobility programs. Expatriate policies and packages are expensive and complex, and there are many partners in the process. But expatriate management spending may be difficult to contain. Sadly, employers find that many assignees don’t value their mobility packages or don’t understand the program policies or changes made. Sometimes, line managers strike deals with assignees that cannot be fulfilled, thus contributing to overall dissatisfaction with the program.

Marketing any mobility program involves going beyond just provid-ing information. It means smart marketing, appealing to the emo-tions of candidates and building on the positive experiences of assignees to influence others who are considering working interna-tionally. By highlighting the advantages of an assignment and show-ing how an assignment would work and what the benefits would be,

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employers provide powerful incentives. Once a candidate accepts an international assignment, arranging resources and organizing infor-mation into an action-oriented framework will provide a roadmap to help navigate the many stages of an assignment − from immigration services and tax consultation to travel expenses and relocation ser-vice. Rolling out a communication plan focused on what candidates should do and simplifying access to tools with modern media and technology will keep the process running smoothly.

A NEW DIRECTION: SATISFYING ALL STAKEHOLDERSThe war for global talent continues unabated. Employers that make global mobility a strategic priority, aligning talent needs to core busi-ness objectives, will have a better opportunity to develop leadership that can take the company forward in the global arena. Achieving this will necessarily involve employing an effective communication strat-egy, resulting in satisfaction for all stakeholders. Employers will be able to meet their workforce needs, harness the right technology, develop new competencies, align talent with the right locations and achieve a global footprint that prepares them for future growth and opportunities. Assignees will have a better international experience, be able to shape and develop their careers and have improved overall job satisfaction.

CASE STUDYENHANCING UNDERSTANDING OF GLOBAL MOBILITY FUNDAMENTALSJohnson & Johnson sought to build a better understanding of global mobility fundamentals. The com-pany began by designing a new portal to provide current and prospective assignees, managers and HR executives with a wide range of information and resources about global assignments and transfers at the company.

With easy access to policies and procedures, assignees can plan for and prepare for an international assignment and learn about the benefits and support available. The site allows assignees to view a webi-nar or to access a ‘Quick Guide, both of which offer an overview of global mobility, so that visitors can get a better understanding of what is involved in working internationally, as well as find out about additional resources available to current and future assignees.

Managers can access e-learning modules – essentially, downloadable narrated PowerPoint presentations covering several stages of the process that are available on demand and can be used “live” as needed. The modules are designed to better inform the HR function of the process and its role in moving talent globally, with discussions on planning an assignment, home HR responsibilities, host HR responsibilities and the bal-ance sheet approach to developing assignment compensation packages.

The new portal aims to improve enterprise communications and awareness of global mobility and vendor resources, and provide a platform for business unit HR education and communication, says Kathleen Kartso-nis, Director, Global Mobility Programs at Johnson & Johnson. Through the portal, the company also seeks to increase awareness of the global mobility policy and processes within the HR function, educate the entire HR community regarding global mobility concepts, enable stronger global mobility/business unit HR partner-ship, drive better assignment planning and improve process efficiency and compliance, she adds.

Johnson & Johnson’s new portal is user-friendly, with content arranged by: (1) enterprise, (2) assignees and (3) HR community, thus communicating to all actors involved in the expatriate management rela-tionship. It includes rotating ads that link to content and high¬lighted news, with quick links to infor-mation and resources and tools. And it has one HR look and feel.

Smart marketing. It’s about satisfying needs.

*We thank Kathleen Kartsonis of Johnson & Johnson for allowing us to share the company’s web portal case study.

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TALENT MOBILITY: EXPAT RETIREMENT AND HEALTHCARE TRENDS IN INTERNATIONAL ASSIGNMENTS

Abstract: In this article, Jean-Philippe Provost covers some of the highlights of the joint Mercer/World Economic Forum research on talent mobility. He also reviews the findings of Mercer’s 2012 Benefits Survey of Expatriates and Internationally Mobile Assignees, provid-ing insights into the latest trends in international assignments and the challenges multi-national employers face in providing retirement and medical benefits.

It’s no secret that employers operating globally are scrambling to fill skills, information, and talent gaps. When you consider these stag-gering statistics, you’ll understand why: Roughly 13 million people are unemployed in the United States and over 200 million are unem-ployed globally; there are about 3.3 million job vacancies in the United States; and globally, 34% of employers can’t fill available jobs.* In attempting to address this situation and optimize business opportunities, employers are searching far and wide to attract and develop talent, or as Klaus Schwab, Founder and Executive Chairman of The World Economic Forum, says, “the world is moving from capi-talism to talentism.”

To better understand the challenges global employers face, Mercer collaborated with The World Economic Forum in 2011 to conduct extensive global research on how effective talent mobility can spur economic growth. The findings of the Mercer/World Economic Forum Talent Mobility Research were presented at the Forum’s 2012 annual meeting in Davos, Switzerland. Discussions centered on the persistent struggle of employers and countries with widespread unemployment and huge untapped labor pools, as well as talent shortages and skills gaps in many industry sectors, all of which has impeded economic growth. Clearly, there is a mismatch between what’s in demand and what’s available in the global talent pool.

By Jean-Philippe Provost, Senior Partner, International Consulting Group North America Leader, Mercer

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At Mercer’s 2012 North America Expatriate Management Conference in May 2012, participants got a chance to review the findings of this research as well as those from Mercer’s 2012 Benefits Survey for Expatri-ates and Internationally Mobile Employees. What emerged is that talent mobility is not achieving its full potential. With shifting demographics, the aging workforce, increased global mobility, and socio-economic chal-lenges, multinational employers must rethink their approach to talent mobility and management in order to respond strategically to market opportunities.

Today’s business leaders agree that talent is the fuel that drives the engine of the global economy, enabling private companies, govern-ments, academic institutions, and non-governmental organizations to close skills gaps and remedy talent shortages while helping people to become employable. Based on research findings, in Partnership with the Forum, Mercer produced the Talent Mobility Good Practices report, which examines the types and intentions of mobility programs around the world. Good talent mobility practices can boost labor supply, stim-ulate labor demand, or better balance supply and demand through changes in the cost or quantity of labor – all of which leads to growth.

Those surveyed – more than 500 organizations in 45 countries with best practices in mobility – view mobility as a way to develop and retain key talent, increase diversity, transfer knowledge, and foster growth. Not only are employers moving workers physically within or across organiza-tions, industries or countries, but they are also moving them across busi-ness units and job families as well as across occupations or skill sets. International assignments are multifaceted, with assignment types evolving to meet business needs.

The report uncovered four key problems that impede talent mobility: widespread unemployability, critical skills gaps, information gaps, and public and private constraints.

Addressing these barriers can be done through:

•Training and employment subsidies to address unemployability

•Retraining and up-skilling the workforce and better career develop-ment to close skills gaps

•Increasing the information provided to individuals and employers, refining workforce planning, and standardizing credentials to fill infor-mation gaps

•Facilitating migration, increasing mobility within the organization, and moving jobs to people to address public and private constraints on mobility

Some of the largest companies like Walmart, Cisco, Marriott, PwC, 3M, Marsh, and Abbott, among others, actively employ these types of practices.

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ATTRACTING TALENT: THE ROLE OF RETIREMENT AND HEALTH-CARE BENEFITSAccording to Mercer’s 2012 Benefits Survey for Expatriates and Inter-nationally Mobile Employees, which polled 288 multinational employers worldwide with an aggregate of 119,000 expatriates, the number of international assignments has remained relatively stable over recent years, but the percentage of “global nomads” (employ-ees who move from country to country on multiple assignments) rose from 6% to about 10% of the expatriate population of survey respondents, while the percentage of short-term expatriates (those assigned to a project for less than a year) decreased by more than one-third, from 17% to 11%. Long-term expatriates, as a percent-age of the assignee population, increased from 21% to 40% between the 2008/2009 and 2011/2012 surveys.

These changes have presented significant challenges for multina-tional employers when it comes to providing retirement and health-care benefits. The survey showed that 85% of survey respondents have procedures to monitor the success of their global programs, eager to ensure that their expatriate benefits programs meet assignees’ needs while supporting business and HR strategies.

Some of the rising challenges for multinationals in providing expa-triate benefits include:

•Developing a globally consistent approach

•Ensuring that expatriates are not disadvantaged

•Addressing the taxation issue

•Containing costs

•Ensuring a smooth transition at the end of an assignment

•Developing policies and plans for new countries

RETIREMENT BENEFIT TRENDSSurvey respondents indicated that they are questioning how they categorize expatriates and what their approach to retirement ben-efits should be. Today, the most common approach to providing retirement benefits for all internationally mobile employees is to keep workers in their home-country plans on the assumption that they will eventually retire in their home countries. Sixty-three per-cent of employers maintain traditional and long-term expatriates in their home-country retirement plans, done partly to meet expatri-ates’ expectations and prevent fragmentation or loss of benefits. But these can be expensive and hard to administer. While this approach is suitable for short- and medium-term assignees (up to five years), it’s more problematic for long-term assignees.

Employers are now focusing on those employees who have remained on expatriate-style packages even where they have been localized, and they are talking with these employees about phasing out certain benefits to help reduce home-country costs and, in some cases, transfer those costs to host countries. At any given time, multina-

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tional employers are often dealing with three generations of expatri-ates, all with different expectations and needs. So knowing the profiles of these workers is critical to creating the right mobility expe-rience for them.

Another approach is to have assignees join host-country plans. While this approach is best for localization and defined contribution (DC) environments, providing equity between expatriates and locals, it can result in fragmented benefits and consequently dissatisfied assignees.

To simplify the administration of retirement benefits and reduce costs, about one in eight employers (12%) have adopted a dedicated international benefit program, in which participation in a home-/host-country program would be waived. These plans are generally offshore-based plans that allow for all expatriates to have the same level of benefits, but they are more suitable for global nomads who may be working in countries where there is no pension plan or where membership in a host country would adversely affect assignees. There are also tax challenges and limits on memberships in these plans. While 12% seems low, use of these plans is increasing outside the Asia-Pacific region.

The survey also looked at trends in plan types. Sixty percent of international pension plans are now defined contribution (DC) plans vs. only about 20% in 1991. Defined benefit plans fell from a record 80% in 1991 to a low of 20% in 2012. Currently, 20% of respondents said that they provide hybrid plans. In terms of fund-ing for international plans, 10% were unfunded, 26% used external offshore insurance, 37% used an external offshore trust, and 19% had other arrangements. Regarding DC contribution structures, the average employer contribution rate is approximately 11% of com-pensation, up from 9% in 2008 and 7.5% in 2005. The form of pay-ment for 48% of companies is lump sum, with an annuity used for 14% and a mix of lump sum and annuity for others.

MEDICAL BENEFIT TRENDSMedical benefits and the quality and standards of healthcare vary significantly from country to country, so providing expatriates with a reasonably equitable system of healthcare in multiple countries while managing costs can prove daunting. Nearly all respondents (98%) currently provide some type of private medical insurance to their globally mobile workforce, compared to only 57% in 2005.

Employers must deal with a host of issues, including navigating local health care options and determining eligibility, not to mention ensuring consistency among expatriates, administrative tasks and cost allocation.

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0

10

20

30

40

50

60

70

80

90

DB DC Hybrid

1991 1997 2001 2005 2008 2012

2012 EXPAT BENEFITS SURVEY HIGHLIGHTS INTERNATIONAL PLANS – TRENDS IN PLAN TYPES (%)

Some approaches to providing medical benefits include home-country, host-country and an international plan.

•A home-country approach aligns with employee expectations, reinforcing the assignment’s temporary nature and maintain-ing equity with home-country peers. This approach also aligns with home-country Social Security and avoids problems associ-ated with pre-existing conditions.

•A host country approach ensures equity between expatriates and locals, providing benefits appropriate to the host country. Plus, local employer costs are in line with domestic burden and employ-ers can access local tax relief, both corporate and personal.

•An international medical plan offers the appeal of a common design and equity among expatriates. These plans reduce administrative efforts, relieve financial and time resource con-straints and often dovetail with Social Security reciprocity agree-ments. Forty-two percent of surveyed companies provide an international medical plan. Factors that may be driving uptake of these plans include an increase in local health insurance compli-ance and increasing demand from employees that their medical plans are in place before they go on assignment.

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But cost is an issue, with 53% of respondents experiencing an increase of 6% or more in their medical premiums at their last renewal. Twenty percent of companies have seen their premiums increase by between 11% and 15%. Joe Barber, Health & Benefits Senior Associate of Mercer Middle East, says, “Complexity in admin-istering multi-country plans can increase the cost of providing medi-cal benefits,” adding that the most popular destinations for assignments happen to be countries with the highest medical infla-tion in the world, such as the Middle East, China, and Latin America.

The following chart illustrates medical inflation in E7 developing economies versus the developed G7 countries:

MEDICAL INFLATION TRENDS HEALTHCARE INFLATION – E7 VERSUS G7 COUNTRIES

Source: Mercer 2010 Global Medical Trends

UK 6%UK 6%

United States 7%United States 7%

16%Mexico 16%Mexico

15%India 15%India

18%Russia 18%Russia

8%Brazil 8%Brazil

Japan 9%Japan 9%

Germany 6%Germany 6%

France 4%France 4%

Canada 9%Canada 9%

Italy 2%Italy 2%

10%China (Mainland) 10%China (Mainland)

2%Indonesia 2%Indonesia

12%Turkey 12%Turkey

According to the survey, traditional cost-containment options remain popular, with a large proportion of respondents adopting cost-sharing measures such as employee deductibles (up 8% from 2008/2009), co-insurance, and annual benefits limits.

The survey also drilled down to the types of medical benefits that expatriates value most in an international medical plan:

•Primary care – 81%

•Routine maternity – 74%

•Chronic illness – 72%

•Routine dental – 69%

•Evacuation – 56%

•Repatriation – 50%

•Other – 2%

Some employers are turning towards a hybrid approach, also known as a “local plus” program. “Local plus” arrangements (where local care is adequate) allow employers to recognize the needs of

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mobile employees and contain costs. In such a plan, mobile employees participate in local medical plans but are provided a “benefits allowance” to use to buy additional international medical plan coverage (secondary basis), pay out of pocket for additional services (for example, out-of-country care) and apply to interna-tional retirement savings accounts. Group international rates can be negotiated with certain carriers on this basis.

MOVING JOBS TO PEOPLE THE ROLE OF BENEFITS IN THE EMPLOYEE VALUE PROPOSITION

THE AMERICASIn linking jobs to people, benefits play an important role in the employee value proposition. In many countries, benefits such as career advancement, base pay, type of work and training opportu-nities are important, with each country assigning a different value to benefits. In terms of medical and retirement benefits, the differ-ences are more striking. In Argentina, health insurance with broad coverage is ranked fifth in importance. In Brazil, retirement and medical benefits were not even listed as important components of the value proposition. In Canada, retirement savings or a pension plan was ranked second in importance, while in Mexico, retirement savings or a pension plan and broad coverage medical insurance was ranked fifth and sixth, respectively. In the United States, retire-ment savings or a pension plan was ranked second, and low health-care costs was ranked fourth in importance.

EUROPEWith the recent changes made to social programs in Europe we are seeing supplemental retirement and medical benefits climb the chart. France ranked a supplemental retirement plan and private medical insurance fifth and sixth, respectively. Retirement savings or a pension plan was ranked fifth in importance in Italy and fourth in the United Kingdom.

MAXIMIZING TALENT MOBILITYAs multinational employers continue to pursue and deploy talent worldwide, understanding the key drivers of assignments will help employers target the right incentives. While career advancement and base pay are important benefits, providing retirement and medical benefits can also be critical factors in attracting and retain-ing the right employees. In India, targeted benefit interventions can drive talent acquisition. And tapping underutilized talent sources, such as women, can also help to boost the talent pipeline. With the business world flattened and global nomads increasing, redefining the employment proposition and integrating talent mobility pro-grams into the workforce management framework will help employers stay competitive and poised for future growth.

Find more insightful articles and learn about Mercer’s global mobility offerings at imercer.com/mobility.

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For details, please contact your local Mercer office or visit our website at imercer.com/mobility.

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Australia

Austria

Belgium

Brazil

Canada

Chile

China

Colombia

Czech Republic

Denmark

Finland

France

Germany

Hong Kong

India

Indonesia

Ireland

Italy

Japan

Malaysia

Mexico

Netherlands

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Norway

Peru

Philippines

Poland

Portugal

Saudi Arabia

Singapore

South Korea

Spain

Sweden

Switzerland

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Thailand

Turkey

United Arab Emirates

United Kingdom

United States

Venezuela

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