Two Minutes to Rethink Global Mobility Cost Cutting (And Do Something About It)

This article series offering short overviews of numerous key topics and trends in the field of global mobility is available in one PDF for your convenience.

By Olivier Meier, Mercer

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Global Mobility is not spared by the ongoing corporate struggle to cut costs, and assignees are commonly perceived as expensive. Downturns in economic cycles and corporate reorganization regularly prompt top management to request overall cost reductions, a limit on the number of traditional assignees, or cuts in expatriation packages. Here are a few things to bear in mind when looking at mobility costs.

Before Cutting Costs

Take time to explore the root of the problem

Is the question really purely about costs or rather about the perceived value of assignments compared to their associated (and highly visible) costs? How are costs split between the home and the host countries? Is the split unsustainable for some of the business units involved (especially host country operations)? What is the general level of understanding and acceptance of global mobility within the company?

If necessary, reframe the discussion and review the cost issue within the broader context of business value, processes, and talent mobility within the organization.

Make sure you have all the facts right: cost projections and assignment tracking

Recent research has shown that although just over two-thirds of companies perform detailed cost projections, a worrying number of multinationals are still relying on rough calculations only or don’t include tax and social security costs in their estimates. Conversely, according to the same survey, 57% of companies still don’t track actual expenditure against forecasts. Furthermore, cost analyses should not just be based on current assignment patterns and also need to integrate potential future moves as well as assignments happening under the radar (i.e. not tracked centrally).

Understand the issue is not just about the amounts paid but also the duration of payments

Are you creating on-going cost commitments for the company by providing benefits and allowances that will be difficult to discontinue at the end of the assignments or by using compensation approaches that permanently inflate the base salary of mobile employees?

Check if you are forced to make costly exceptions

Going to extremes (i.e. having very rigid policies, or on the contrary, highly flexible, negotiable ones) could trigger costly exceptions or ad-hoc deals. Even if you’re doing things right policy wise, local implementation of these policies might be at fault and lead to negotiations and exceptions.

Remember that lost opportunities is one of the biggest costs

Losing key talent, having disengaged employees, failed assignments, and not using former assignees’ skills upon repatriations are costs that might be difficult to quantify but that are impacting the business. These issues should be part of the overall cost discussion.

Implementing Effective Strategies for Cost Containment

Expand your talent pool

Lack of choice is driving costs up. The cost of assignees may vary widely depending on their home country, current compensation package, family status, and personal expectations. It’s too late to complain about the costs once a candidate has already been selected. Planning for future assignments and expanding the mobile talent pool by identifying potential internal candidates and external hires help increase choice and keep costs down. Nurturing the wider talent ecosystem (for example returnees, spouses rejoining the workforce, as well as freelancers/gig workers who could fill talent gaps) also helps expand the available talent pool.

Adopt a broader definition of mobility to have more options

Don’t be constrained by the traditional definition of mobility (which is too often synonymous with long-term assignments) and look for an alternative: assess when other types of moves such as commuters, frequent business travelers, or even virtual assignments can replace traditional expatriate assignments. Remember that mobility is as much moving jobs to people as moving people to jobs and that you can sometimes also take relocation out of the equation by hiring foreigners locally.

Segment your policies

Segmenting your policies is a good way to reconcile the cost control versus international expansion dilemma in a context of budget constraint by shifting budget from less essential moves to assignment that are critical to the business.

Revise your compensation approaches

There is no perfect unique compensation solution that will allow companies to systematically decrease costs for all moves while still removing barriers to mobility for employees. However, having the right mix of approaches by taking into account the specificities of each type of moves can help drive costs down. Explore the use of local or local-plus approaches for some moves but remember that depending on the destination, a local-plus package can also be very costly.

Managing assignment allowances

Make a distinction between core equalizations package items (e.g. cost-of-living allowances and tax equalization) and flexible items that could be decreased. Many companies find they don’t need extra incentives for all types of moves and retain mobility premiums only for business critical moves or don’t provide them at all. A number of organizations are trying to align housing allowances with local housing practices in non-hardship locations. Covering international school fees might be a requirement to facilitate family relocation but setting strict schooling guidelines and a fixed budget help control costs.

Avoid on-going cost commitments

Buy out assignees (i.e. pay a one-time lump-sum) to avoid paying benefits and allowances for years if the duration of the assignment is not clear or if you are planning to localize employees. Always bear in mind potential long-term consequences of compensation adjustments on the future cost of mobile employees before tampering with base salaries. Employees will resist future attempts to decrease what they perceived as core compensation – unlike relocation allowances, base salary increases are likely to be permanent.

Control exceptions

Create internal awareness about mobility policy exceptions and make sure a robust approval process is in place (if possible involving senior management). Clarify what is non-negotiable and keep exceptions in line with the core principles of the policies. If possible suggest using predefined alternatives (e.g. an existing assignment category in a segmented policy) as opposed to ad-hoc deals.

Contact the author: Olivier Meier