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'It’s Not Enough Money!': 3 solutions for low-wage to high-cost assignees

May 06, 2019 @ 12:01 AM / by Grace Kernohan

Currency symbols on human hand. Money making and wealth

The problems with low-wage to high-cost locations:

Many global mobility professionals have run into this problem:

Assignee: “I don’t have enough to purchase goods in my host location!”

Global Mobility: “Our policy provides a COLA and they have money from their salary to bring. How could the assignee not have enough?”

When transferring assignees from low wage to high cost locations, many companies are confronted with this challenge: even with a COLA, their lowest wage assignees don’t have sufficient purchasing power in the host location, especially in comparison to their fellow expats and local peers.

 

Why does this happen?

COLA indices are designed to fit a typical assignee from a given country. Assignees with very low wages (e.g. <50% of their peers in high wage locations like the US, Japan, UK, France, etc.), break this mold. Indices designed for higher wage assignees from the same home country won’t provide sufficient COLA to bring them up to an acceptable purchasing power in the host location.

 

3 common solutions to resolve low-wage to high-cost problems:

Below is a chart outlining three of the most common solutions as well as detailing some of the strategic and operational questions that global mobility should consider before implementation. Keep in mind as you read, the 3 options below don’t represent the complete universe of possible solutions to this issue, just the most common ones. Always consider your global mobility philosophy and strategy as well as your operational constraints as you look for a solution:

 

 

 

Key Questions:

 

Solution 1:

Use Multiple Indices

 

Solution 2:

Establish a COLA Floor

 

Solution 3:

Maintain a Safety Net

 

 

 

What is this solution?

 

 

Use a second index for low wage combinations that reflects cost differences for low wage assignees to boost COLAs.

 

 

All assignees below a designated salary receive the COLA at that designated salary rather than at their actual salaries.

 

 

Assignees’ total available spending at host (their contribution plus the COLA) is compared to a host/expat peer and an additional payment equal to all or part of the difference is made to supplement the COLA.

 

 

Strategic Considerations:

 

 

Does it keep the link to home purchasing power and facilitate future mobility?

 

Yes, assignees’ home purchasing power is uplifted, but not linked to host.

 

Yes, assignees’ home purchasing power is uplifted, but not linked to host.

 

No, assignees’ purchasing power is partially uplifted based on host/expat peers, so may impede future mobility.

 

Does this solution provide a complete solution?

 

No, assignees with very low salaries may still be underpaid
Assignees at the high end of the “low wage” salary range may be overpaid.

 

 

No, assignees with very low salaries may only be partially uplifted.

 

Yes.

 

Operational Considerations:

 

 

Does it require additional calculations over and above the COLA calculation?

 

 

No.

 

No.

 

Yes, to compare assignee total host available to spend with host peer spending power.

 

Does it require companies to “designate” assignees?

 

 

Yes, company must identify and manage which assignees use which index.

 

No. 

 

No.

 

Does it require global salary structures?

 

 

No. 

 

Yes, this solution is simplest when the company has global salary structures.

 

Yes, this solution is simplest when the company has global salary structures.

 

Does it require additional 3rd party data?

 

 

Yes, it requires additional indices.

 

No.

 

No.

 

 

 

Take the next steps to save you time and get better results:

As you can see, each solution has pros, cons, and operational requirements. Any of these three solutions will help facilitate equitable transfers from high- to low-cost locations.

If you find yourself facing this issue, reach out to your AIRINC Client Engagement team or email us now. We will partner with you to identify a solution that achieves the results you're seeking! 

Let's talk

 


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About AIRINC

We help our clients address expatriate compensation and mobility issues in a complex global environment through advisory services, data services, and technology solutions, while providing our employees with a culture of teamwork, global knowledge, career growth, and interesting solutions to challenging problems.

We understand that people make an organization successful. We empower companies to deploy global talent by leveraging high quality-data, decision-making tools, and thought-leading advice. Our industry expertise, solutions, and consultative approach enable us to partner with clients to deliver value. Learn more by clicking here.

 


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Authors:

This post was collaboratively written by Jade Chang, Adam Silver, and Grace Kernohan.  

 

Topics: Cost of Living, Mobility Policy, Cost of Living Surveys, Cost of living data, COLA, Cost of living allowances, Calculate cost of living allowance

Grace Kernohan

Written by Grace Kernohan