What’s Inside an International Compensation Package?
Negotiating compensation can be tricky in the US, but if you’re offered an international job, compensation issues grow exponentially more complex.
While packages differ by company, some items appear in most international employment offers: a housing allowance, help paying taxes, spousal employment help and trips home. Those extra items can more than double compensation.
Missing a big-ticket item will lower your living standard thanks to the extra costs of international living, says Geoffrey Latta, executive vice president of ORC Worldwide, a New York City-based workforce consultancy.
Location matters, too. “The way you negotiate your package and the things you put in your package are highly dependent on the countries where you go,” says Alain Verstandig, president of Net Expat, an Atlanta international relocation company.
Here’s what might be in compensation packages of Americans sent to two popular destinations -- London and Shanghai -- as well as negotiation advice:
Culture influences how and when an international salary is negotiated. In the UK, whether the position is one with a new company or your current firm, start the conversation by talking about your place on a team, achievements and your added value, and then discuss salary.
In Shanghai, attitudes toward pay are split. “Anyone over 40 would be against talking about money, but the younger generation is extremely direct about talking about money, so analyze the age group of the recruiter,” Verstandig says.
About half of companies pay expatriate employees (expats) a foreign-service premium for taking the assignment, says Mary Ellen Myhr, senior manager at Associates for International Research (AIRINC), an international human resources consultancy. Going someplace tough to live? You could also get a location premium.
“Most companies who pay the foreign-service premium pay the same amount -- either 10 or 15 percent -- to all employees, while the hardship premium varies by location,” she says. “In London, it would be zero. In Shanghai, it might be 5 or 10 percent.”
Cost-of-living adjustments are based on:
- The cost-of-living difference between your current and new locations.
- What a person with your size family and salary spends on goods and services annually.
- Housing costs.
Suppose you earn $100,000 and have a four-person family estimated to spend $40,000 on goods and services. If it costs 30 percent more to live in the new city than in your hometown, you’d get a cost-of-living adjustment of $12,000, or 30 percent of $40,000.
Housing is a huge issue in Asia, says Fred Schlomann, a Hong Kong-based managing director of AIRINC. “In Shanghai, there’s plenty of decent housing,” he says. However, areas where you can live near other expats and international schools are limited and in high demand, he says.
In London, rental housing in good neighborhoods is expensive, according to Latta. You’ll likely have to choose between living in a smaller home in a central, upscale area and a bigger home with a longer commute or in less-appealing neighborhood. “Really looking carefully at housing options is the biggest single thing that will impact your well-being,” he adds.
Family size and corporate rank determine the size of your housing allowance. If you can, visit the housing your allowance could cover to see if it’s suitable, Schlomann says.
When you work outside the US, you still have to pay US taxes. “There are credits and exemptions so you don’t end up with double taxes, but the UK is going to tax you and the US is going to require you to file a return, and the higher paid you are, the more likely it is you’ll be taxed twice,” Latta says.
In Shanghai, you’ll pay substantial Chinese national taxes and possibly local taxes, but compensation can be structured tax-effectively, according to Schlomann.
Ask your employer to pay for tax-return preparation and the cost of double taxes (referred to as “grossing you up”). Before accepting an offer, consult with an accountant familiar with international compensation, Myhr suggests.
Can’t get tax prep covered? Expect to pay a Big Four firm about $3,500 to prepare your foreign, US and state returns, plus more fees for advice about minimizing taxes, employee obligations or noncompany income.
When you work in the UK, your family can get free national health coverage. Upper management professionals may get private coverage as well. In Shanghai, only Chinese nationals receive national health coverage. Some companies provide international health insurance.
Ask how your family will get basic and emergency healthcare, especially in countries with areas that lack medical care, Schlomann advises.
If you’re staying less than five years, you can typically opt out of paying into the host country’s retirement plan. Most companies will continue to pay your FICA so you stay in the US Social Security system,
In Shanghai, the Chinese retirement system is only for Chinese nationals. Ask your company for an offshore retirement plan or an insured retirement program, Schlomann says.
If you hop from one international assignment to the next, you could participate, but never vest, in several retirement plans, leaving you ineligible for any retirement benefits, Myhr adds.
Just over half of companies will help your spouse find work, Verstandig says. If your working spouse is going to be unhappy stuck at home overseas, be sure to ask for this benefit. Spousal assistance also covers help with visa issues and getting the family settled in the new location.
No Room to Negotiate
The more employees a company moves around the globe, the more likely it is to have standardized compensation packages, which makes it less likely you’ll be able to negotiate upgrades or additional items.
“The bigger companies try to avoid negotiation,” Latta says. “They feel it would be time consuming, and if they’re sending six people to London and create different arrangements, those people will talk to each other and compare.”
You can always ask for what you want, but don’t be too disappointed if you can’t get more than you’re offered.
Learn more about international careers.