Jeff Hawk, AIRINC’s Vice President Americas, recently wrote about compensation challenges “How Does Your Job Offer Stack Up?”. My colleagues Adam Silver and Michael Joyce followed up with posts on how to attract talent if affinity between two locations is low.
In this post, we will look at a case study in the Asia Pacific region using AIRINC’s Salary Evaluation Tool (SET), focusing on affinity and purchasing power.
Affinity refers to the similarity of pay and taxation structures. The higher the affinity, the less likely the assignee will experience changes in spending habits and compensation. In the mobility context, this refers to the similarities and stability of the home and host economies and their respective currencies. Companies often create an Affinity Matrix, a grid that allows them to compare salaries and tax structures side by side to determine when a transfer makes sense from a net compensation perspective.
In a recent case study, AIRINC helped a Japan-based company analyze its compensation structure as it relates to their business unit in Indonesia. The company was struggling to convince assignees to accept assignments that, on the surface, appeared to pay less than their job in Japan. Using SET, we were able to show the company that the compensation they are offering in the host location (Indonesia, a country with lower wages than Japan) was more than generous when considering cost of living, purchasing power, and affinity.
In this screenshot of the tool, we can see the gross salary offered at home is much higher. Assignees tend to cling to this number and often ask the compensation and benefits department for clarification. By comparing the affinity between the two locations, preparing calculations, and having conversations with the assignees using SET, we showed that the host-offered net compensation exceeded the home compensation, even when it was cost-adjusted. We successfully justified the host-offered compensation by explaining that both goods and services and housing are significantly less expensive in the host location. SET also demonstrates that the host-offered salary offers greater purchasing power than the cost-adjusted host salary. The company’s compensation structure was quite fair for this particular move.
As my colleagues pointed out, a move is not only about the money. It is equally important to consider the cost of the move to the business, the purpose of the move, and other non-compensation factors such as culture, language, and hardship. Luckily, AIRINC’s tools address these elements, so stay tuned for future posts!
Please contact us for more information or if you would like to see a demonstration of the tool.