This is a release by the Africa Brain Gains Movement:
In the global economy, organizations find themselves doing business in multiple countries across the globe. When hiring for senior positions, these multinational companies tend to transfer people from their overseas headquarters or find expatriates already in the host country rather than hire locals with similar qualifications. To attract these foreigners, they offer equivalent benefits to those that the expatriates would receive in their home countries. Surveys have shown that many multinationals use generous benefits to entice foreigners to senior positions, leading to a wide difference between expatriates and similarly qualified locals. When hiring locals, however, they prefer overseas graduates with international exposure and sophisticated attitudes.
Justification for High Salaries:
In addition to the already high salaries, an employer often spends three to five times the expatriate’s annual income on benefits and allowances such as training, housing, cost-of-living differentials, children’s education, club memberships, cars, travel, home leave, taxes and other expenses. In Hong Kong, for example, an expatriate executive gets 106% of his/her basic salary in benefits and allowances. This is seven times more than that of a local person whose allowance is only 15% of the basic salary. For a manager who earns US$100,000 a year in the US, benefits and allowances might translate into US$300,000 to US$500,000 a year. In some cases, hardship and risk allowances can push these figures up another $100,000 or more. Risks such as kidnappings, which are common in some countries, will force a multinational firm to purchase kidnapping insurance, which can cost $1 million for a family with premiums of $18,000 to $30,000 a year. Such insurance covers the cost of ransom, hiring a security firm to handle negotiations and payment to the family.
Optimization (Survey Results):
According to a survey conducted in the US in February 2004, sixty four percent of US and Canadian multinationals send employees on expatriate assignment. About one-third (thirty two percent) of them said such assignments cost too much. Another third (thirty four percent) said their expatriate compensation and benefits policies have been cut back in recent years in an effort to manage costs. According to that survey, the average multinational spends about two and one-half times as much on an expatriate employee as it would to hire a citizen of the host country. The cost difference can be smaller or greater, depending on the country. For example, some respondents in that survey spent twenty three percent more than the cost of hiring a local national, on average, to send an employee to Holland as compared to two hundred and eighty three percent more to send one to Korea. Eighty four percent of the companies surveyed say that the objective of their compensation package is to make the expatriate employee reasonably comfortable; whereas only eight percent said their aim is to reward the employee for taking an expatriate assignment. Ninety three percent of them provide housing allowance; fifty eight percent pay hardship allowance of about fifteen percent of salary in countries where living conditions are extremely uncomfortable or dangerous. Seventy six percent reimburse expatriates for the extra cost of providing an education for their children comparable to that available in the home country at the average rate of twenty two percent of annual salary.
Cost Control Strategies:
Because these high costs eventually put pressure on business, multinationals are taking important steps to manage the potentially high costs of expatriate programs. They are making sure that their benefits programs are not excessive and that each expatriate assignment fulfills a clear set of business objectives.
Destination pricing is one cost-control strategy. This is whereby expatriates are paid equivalent to citizens of the host country and have limited special allowances and tax protection.
Africanization (brain gain) is another cost-control strategy. This is whereby multinationals (in Africa) target the African Diaspora for their executive employee needs.
Although multinationals may complain about the expense of running a business internationally, they themselves bear some responsibility for these high costs. But they will continue to hire expatriates as long as perceived benefits outweigh related costs, often seen as the unavoidable costs of doing business globally. Although only a few currently use destination pricing, more may consider it in the future. The same can be said about Africanization (brain gain).