Attract foreign talent with 'split pay'

Attract foreign talent with 'split pay'

Summary: Offer salaries in currencies of expatriate's home and host countries to combat inflation and currency fluctuation, advises HR firm.

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TOPICS: IT Employment
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Businesses should consider modifying their pay structures to ensure they continue to attract quality employees from the global workplace, even amid the changing economic climate, said ECA International.

According to the human resource (HR) organization, currency fluctuations such as the unstable U.S. dollar, the skills shortage and global inflationary spiral are affecting a company's ability to attract, manage and retain expatriate employees. ECA boasts a membership network of over 4,000 HR professionals from 71 countries.

Lee Quane, the organization's general manager for Asia, noted that employers typically determine the salaries of senior-level expatriate staff using a "home-based compensation methodology".

This model compares an employee's salary in the host country against his salary in the home country. To ensure the employee's purchasing power is maintained, employers usually provide a cost of living allowance.

If living costs rise in the host country, the employer may therefore have to increase the cost of living allowance to protect the employee's purchasing power, Quane told ZDNet Asia in an e-mail interview.

One pay, two currencies
ECA hosted a recent conference in Singapore, attended by HR managers and policy makers, where it proposed a "split pay" method--enabling expatriate employees to receive part of their salaries in the host country's currency, and the rest in their home country's currency.

Paying all of an expatriate's salary in only one currency could pose a problem for the employee who would normally have cross-border financial commitments, Quane said.

"For example, staff seconded from Singapore to Indonesia will need money in Indonesian rupiah (IDR) to satisfy day-to-day consumption needs, as well commitments at home, such as for housing and savings," he explained. "If the company pays 100 percent of the staff's salary in either Singapore dollars (SGD) or IDR, the employee will need to transfer money into another bank account and [convert] currency on a regular basis."

This pay structure may adversely affect the employee should the SGD-IDR exchange rate fluctuate during the employee's assignment, he said.

According to Quane, the split-pay salary delivery mode helps the expatriate maintain his purchasing power in the host country, while managing commitments at home.

"The proportion of the home and host components is fixed until the employee's salary is reviewed the following year, where the base salary will be adjusted and the exchange rate altered, to reflect the exchange rate in effect during the salary review," he said.

"This is an ideal solution. However, [not all] companies will be able to employ split pay due to a lack of resources, currency controls or compliance issues in some cases," he cautioned.

The increasingly competitive global labor market further adds pressure on employers, who then need to ensure they can continue to attract and retain the foreign talent they need.

This may not simply be a question only of compensation but also about "salary delivery", which relates to how a company protects the earnings of its foreign employees against currency fluctuations, explained Quane.

Recognizing that part of a foreign employee's income has to go offshore, he said companies that do not protect the monetary value being remitted overseas will likely lose out to companies that do, in the battle for foreign talent.

Retaining foreign talent
With the exception of a relatively small number of instances, foreign employees generally see employment overseas as temporary undertakings, with the aim to return to their home country after a while, Quane said. This state of mind exists through the spectrum of foreign workers, ranging from unskilled or semi-skilled immigrant workers, to those in c-level positions.

To address this, companies can retain expatriate staff by successfully integrating them with the company's local workforce--though Quane described this task as a "tough challenge".

He noted, however, that Singaporean companies--with their multicultural population--have an edge. "They should be better-placed than their counterparts in the region, to adapt their working environment to overseas employees, or even integrate them into the employment structure of their companies," he said.

"Those that are not able to successfully integrate foreign staff are likely to experience high turnover rates among this group of employees who, if not given a sense of belonging to the company, will move on to other employers that either offer better salaries or a greater degree of integration."

Topic: IT Employment

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