Advanced Human Resource Management Assignment [ BM 132 ]

Compensation Management of Expatriates at 20 Microns Ltd.

Submitted To Ms. Vinky Sharma

Submitted By Sajal Gupta (7503878)

DDM-2007 Batch

 Expatriate Compensation Management

Any major organization operating internationally could rely entirely on staff recruited locally. Most do so for the majority of positions. However, most companies also employ expatriates, those who work outside their country of origin, for a variety of reasons. In some cases, these workers fill skill gaps when local staff is unavailable; in other cases, they may be sent to train local staff or to install companywide systems in areas like IT and finance. Some may be sent on developmental assignments to gain skills and experience at an early stage of their careers. Increasingly, part of the motivation is to ensure that the company s future top-management cadre has some international experience. Whatever the reason for using expatriates, this relatively small group of people takes a disproportionate amount of HR time. In setting pay for key local staff, employers must ensure that they are competitive with the local job market and that they offer challenging jobs within a country with the prospect of advancement within that country. However, this approach is insufficient for expatriates, whom employers must view by reference to different countries where they originated, where they are currently working, where they will next move and where they will ultimately work. In terms of both pay and career, this perspective means taking into account conditions in at least two, but often more, countries. Expatriates also cost a lot of money cost-of-living and housing allowances travel home at the company s expense, additional premiums on top of their basic salary and children who must be educated.

 About the company:

Company Name: 20 Microns Ltd Company Type: Industry Best Total Turnover: $2 billion $2.5 billion No. of Employees: 2000-2500 Sector: Private Sector

20 Microns was founded in 1987 in the bustling industrial city of Vadodara to manufacture White Minerals of supreme quality. The company specialises in the production of various industrial minerals such as calcium carbonate, China Clay (Kaolin), talc, dolomite, silica and mica, which are used in paints, plastics, rubber, ceramic, paper and other industries as functional fillers. Ever since then, 20 Microns sustained efforts towards excellence and innovation has made it a prominent name in the industrial arena.20 Microns is India s largest producer of white minerals offering innovative products in the field of Functional fillers, Extenders and Specialty chemicals. Owing to well-equipped laboratories and the most advanced control instruments, 20 Microns produces minerals of highest standard of quality and consistency. A dedicated R&D center is the focal point of innovations that leads to formation of advanced quality products. Experienced and competent Chemists, Geologists and Engineers make up the workforce at the R&D center and Quality control laboratory. From textile, plastic, rubber, adhesive and paints that add color to the world, to Paper and Printing Ink that set thought and life in motion, to the Agro-chemicals that runs the agriculture industry in shape, 20 Microns is reaching to the lives of millions, everyday. The company has about 70 international customers located in 30 countries utilising 450 product grades. These are in addition to the 700 local customers spread across India. 20ML s top 10 renowned customers based on sales as on FY08 are Berger Paints India Ltd, ICI India Ltd, Kansai Nerolac, Plastiblend India Ltd., Asian Paints Ltd, Pidilite Industries Ltd, Kandui Fillerteknik, Finolex Cables Ltd, Shriram Polytech and Akzo Nobel Coatings Ltd. Today, it is a multi-product company catering to a cross section of industry across the globe. With the best manufacturing practices and state-of-the-art R&D center, the international business forms one-fourth of the 20 Microns business with a strong presence in more than 47 countries across Europe, Africa, Australia and Asia Pacific.

 Expatriate Compensation Policies of Company: y

Housing

The organization typically calculates housing allowances based on salary, location, and family size etc. So, the transferee is given a target price for the appropriate house rental cost prior to the housing search process. The company foreign housing differential considers cost differences between the home and host countries for rent and utilities. Appropriate housing is typically based on what is considered market practice for the expatriate s peer group in the host country unless this is not possible due to availability or lack of acceptable western standards. The transferee is given a target price for the appropriate house rental cost prior to the housing search process. As an incentive to rent cost-effective housing, the company will share 50/50 the difference between the actual rental cost of the host housing and the target if the actual rental cost is lower. The employee s share of this sum will be paid as a lump sum annually. These payments will be fully taxable to the employee and will not be subject to tax equalization or tax protection. Based on the employee s salary and family size, a host country housing cost based on the availability of rental properties for the assignees host country peer group will be determined. The rental properties are profiled taking into account host country peer housing, home country housing standards, and host location inventory.

y Education
The organization provide educational assistance to cover expenses that exceed normal home schooling costs for expatriates with children in primary or secondary school. These expenses typically include tuition, books, and transportation. Type of education Local primary/secondary Local preschool or University (including international schools ) Boarding School (primary/secondary) If free local schools, no education allowance. Otherwise, tuition, books, mandatory school fees, and transportation covered. Company does not pay Provided upon approval of the business unit s human resources director if no adequate local school

Education allowances are intended to provide adequate elementary and secondary education an employee s children equivalent to that of public education in the home country. Allowance for preschool or post-secondary education is not provided under company s policy. Allowances are provided on an expense-reimbursement basis or may be paid directly to the school by the company. A foreign location school is considered adequate when the student who has successfully completed a given grade at that school could be accepted into the next higher grade in a public school in the home country. If there are free local schools that are considered adequate, education allowance is not provided. Local school expenses covered include tuition, books, mandatory school fees, and transportation provided by the school or outside contractor. If there is no adequate school within the normal daily commuting distance, an education allowance for boarding school will be made upon approval of the business unit s human resources director. Boarding school expenses covered include:  Tuition expenses, books, and required fees  Room and board in excess of $150 per semester, or $300 per school year per child  Actual transportation expenses (surface or economy class fare) incurred traveling to and from the foreign designated school location at the start and end of the school year, one round trip for Christmas vacation, one round trip during spring vacation, and one round trip per break that is longer than one week long. If the trips are not used, there is no cash payment in lieu of benefits. Non-reimbursable expenses include:  Uniform costs  Personal expenses not included as normal and approved room and board costs (e.g., laundry/dry cleaning, attendance at social functions, extra meals).  Extra costs involved in participating in optional activities or courses which are not required by the school or for promotion to the next higher level. Dependent children attending undergraduate college in the home country will be entitled each year to two economy class airfare (Christmas and Spring break), round trip, to visit parents in the foreign location. If the trip is not used, no cash is paid in lieu of benefits.

y Miscellaneous Allowances:
Type of Allowance Furniture Utilities Included in relocation allowance Included in the housing differential are allowances for utilities including gas, electricity, heating, telephone installation charges, water, and trash disposal Depends on job requirements Reflects U.S. Department of State guidelines All language training at company expense

Company Car Hardship Allowance Language

The company provides a transportation differential, designed to provide the expatriate with sufficient local currency as may be necessary to bridge the gap between the cost of owning and operating one automobile in the home country and the cost of owning and operating an equivalent automobile in the host country. Where it is overly expensive to own and operate an automobile in the host country, or where commuting by private automobile is impractical, the company provides sufficient allowances for public commuting and will reimburse periodic weekend or vacation use of a rental car in the host country. The differentials are based on the premise that the expatriate will buy or lease one new car in the host country and will carry no less than the minimum local and customary level of automobile insurance. The expatriate can buy a used car, but is cautioned to do so with care. The amount of the differential will not be affected by the employee s decision to buy or lease, new or used. The home country norm is based on the employee s salary level. Components of the differential include depreciation, insurance, license, registration, maintenance, finance costs, fuel, oil, tires, and auto club membership where advisable. It is the policy of the company to reimburse to the employee, spouse, and/or dependent children for language courses taken prior to relocation. After assuming residence in the country, language courses may continue as needed for the employee and accompanying dependents at company expense. In addition, the employee, spouse and dependents age 12 or older will receive one to two days of formal cross-cultural training within 30 60 days of the foreign transfer and again upon repatriation or re-assignment at company expense.

y Salary Calculation
The company uses the Balanced Sheet approach, which seeks to maintain an employee and his or her family s home country spending patterns to the extent it is possible, practical, and cost effective. The approach will equalize goods and services, housing, and income taxes at the foreign location with those of the home country. Allowances, differentials, and deductions will be utilized when necessary to equalize higher costs in the host country. Where it is not possible to maintain the employee s home country spending patterns, the company tries to meet the needs of the employee and his or her family while on assignment. The Balanced Sheet approach is based on the employee s home country base salary in order to achieve the following objectives:  Establish a compensation level for the expatriate that is comparable to that of home country counterparts.  Facilitate re-entry of the employee into the home country organization by providing compensation continuity.

y Relocation/Repatriation Allowance
A relocation allowance will be paid to employees relocating to or from the home country to assist in compensating the employee for some of the incidental expenses incurred when relocating. Such expenses might be the purchase of luggage, baby-sitting service, foreign driver's license and driver's training, needed additional clothing, the conversion or purchase of minor electrical appliances including electrical converters, purchase of additional furniture required, removal or protection against forced sale of major appliances, alteration of and/or purchase of draperies and carpeting, and refurbishing costs incidental to moving into a new residence. Upon the employee's assignment in the host country, the company will pay a one-time relocation allowance as follows:  Unfurnished Housing 100% of monthly base pay up to $10,000  Furnished Housing 50% of monthly base pay up to $5,000 The above relocation allowances will also apply to transfers between foreign locations. Upon repatriation to the home country, the relocation allowance will be 100% of monthly base salary up to $10,000. Should the employee voluntarily terminate in the foreign location or be terminated for cause, the relocation allowance will not be paid. The repatriation process at the company is similar to its expatriation. Expenses covered include cancellation of lease for host country housing, relocation expense allowance, tax equalization, temporary living expenses, and transportation from point of origin.

y Foreign Service Premium

While company does not provide a Foreign Service premium, it may pay an Assignment Completion Bonus to expatriates upon successful completion of their assignments. The total bonus is based upon successful achievement of the assignment s objectives as agreed to before the assignment, but will be no more than 15% of the employee s base salary at the time of repatriation. This bonus will be paid within 10 30 days after repatriation or the start of a new international assignment. The bonus will be paid in the employee s home country currency and will be subject to tax equalization. Therefore, tax withholding will not be made from this payment.

y COLA
The goods and services differential is designed to provide the expatriate with sufficient additional local currency as may be necessary to level the cost of goods and services in the home country compared to the host country. These differentials are created using specific home location and host location information and will vary depending on the location as well as salary level, family size, and currency exchange rates. The goods and services differential is determined for each expatriate based on the factors listed below:  Spendable income and spending patterns in the employee's home country. Spendable income is the portion of income that a typical employee spends for goods and services in the home country. Both spendable income and spending patterns are based on salary level and family size.  A standard Market Basket pricing in both the host and home locations comprised of representative items which are available in the home and host country locations.\

y Home Leave
Home leave is defined as vacation taken in the home country and is optional for company s expatriates. Vacation in the first calendar year is granted on the same service-related basis as at home, except where the minimum vacation mandated by law in the host country is greater than an individual s earned vacation. In such cases, the minimum legal vacation in the host country will be granted. In the second year of assignment, and every assignment year thereafter, the employee will be eligible for an additional week of vacation. The additional week will not be granted if the vacation mandated by law in the host country exceeds an employee s earned vacation at home by more than one week. The additional week is only applicable while the employee is on assignment.

The employee is eligible to take earned vacation as home leave up to a maximum of four weeks. Any residual or unused earned vacation may be taken locally. Employees will be entitled to home leave after being assigned in the foreign location for a 6-month period. The company will reimburse home leave airfare expenses, consistent with the company air travel policy, for the employee and accompanying dependent family for one trip per year. The cost of reimbursement will not exceed the most direct airfare rates from the foreign location to the company's headquarters or the point of origin designated for home leave in effect at the time of determination. Should the scheduled flight time require more than 12 hours, the company will reimburse actual, reasonable costs for accommodation and meals for one overnight stopover if needed. Any indirect routing by air or sea is authorized provided the employee pays the excess costs over direct routing and excess travel time is charged against leave. Home leave should not be taken within six months of anticipated repatriation. In addition to home leave/vacation entitlement, as outlined above, employees will be granted travel time sufficient to enable them to reach their home country prior to commencement of vacation (home leave) and to return to the foreign location at the conclusion of their home leave vacation period. If during home leave, the employee is required to engage in company business, the company will reimburse actual, reasonable living expenses for that period. Time spent working during home leave will not be charged to the accrued vacation time. Employee allowances and deductions will be continued while the employee is on home leave or vacation. Unused home leave may not be carried over to future home leave or vacation time. Pay in lieu of vacation will not be granted except in the event of voluntary termination with 30 days notice. Home country vacation policy will apply to such cases.

References y http://www.icicidirect.com/ULFiles/UploadFile_20089918516.pdf y http://www.20microns.com y http://compensation-payroll.hr.toolbox.com/topics/expatriate-policyadministration y http://www.citehr.com/112630-hiring-expats-policy.html y http://www.intransit-international.com/HR_relocation_policy.html