Setting an expatriate’s remuneration is far more complex than a local salary because it has to be benchmarked against different currencies, salary levels and costs of living — and also has to incentivise the expatriate to leave the comforts of their home to take up the international assignment.
Set it too low and he or she may be poached by another company; set it too high and the firm’s local managers get demotivated. The expatriate community in any country is a tight-knit one and soon learns what the going rate is.
Rene Stegmann, director at Relocation Africa, says great care must be taken when it comes to the remuneration policy for international assignments. A number of different methodologies are used, but a company needs to do its own research to come up with the best model to suit its requirements.
“Managing a global workforce is certainly becoming more of a challenge, and with some South African companies entering the global sphere they need to bed down these issues early on in the business strategy of going global,” says Stegmann.
One methodology is the cost-of-living analysis, which seeks to align salaries with the local cost of living. A certain lifestyle might cost R15 000 in South Africa but R25 000 in, say, Portugal. An expatriate’s salary is adjusted for the differential. Nonetheless, he or she may still be worse off than an expat from San Francisco who started with a higher salary but was still incentivised to relocate.
It seems the best practice among HR practitioners dealing with international compensation for Africa is to use the “build-up approach”, which follows this formula: take the base salary at the time of recruitment and apply an index on the expendable portion of the salary using a cost-of-living index, which is derived from a cost-of-living analysis comparing the home and host countries and applying a differential based on the hardship index for the host country.
Stegmann says the issues that affect the hardship index include: the political and economic state of the country; crime and security; the level of healthcare; educational standards; availability of products and services; and the country’s infrastructure.