Marketplace feedback on the challenges of Permanent Transfers
For some time, it has been no secret that companies have been using “permanent transfers” as a low-cost way to move an employee on what is actually a temporary international assignment need. While many mobility professionals are aware of the pitfalls of using a permanent solution for a temporary requirement, the business will often pick a permanent move over an international assignment with the short-term lens of cost savings.
While this trend has been going on since the Great Recession, I have been starting to hear more and more of my clients talk about how the misuse of permanent transfers is coming back to bite them. In many ways this is a predictable case of “I told you so” on the part of many mobility professionals, but it is also an opportunity. It is a chance to leverage these experiences to enhance the global mobility function.
Let’s first explore the three most common issues I have been hearing from clients:
1. Over time permanent transfers can lead to higher costs and less mobile employees.
With permanent transfers, the employee moves to a new country, is put on local payroll, and is typically paid the local prevailing wage. Whenever I have examined the cross-border traffic patterns of companies, permanent transfers are far more common into high-wage countries or where the local wages are similar or higher than those in the home country. This is logical, most employees would not move someplace where they will be paid less.
Even though employees are sometimes paid more as a result permanent transfer, the initial cost to the company is usually less than an international assignment. This is because assignments often come with costly protection schemes like tax equalization and living allowances.
However, what happens over time is that the long-term cost to the company with a permanent transfer may be higher than originally expected. That higher salary is benefits bearing, leading to higher benefits costs. The employee enjoys a higher wage and then is only mobile for a transfer to an even higher wage country. Over time the employee becomes more expensive and less mobile to the company.
With permanent transfers, the employee moves to a new country, is put on local payroll, and is typically paid the local prevailing wage.
2. The Permanent Transfer has gotten a bad reputation and employees are starting not to accept offers, negotiating for an assignment instead.
The expatriate world is small. It becomes clear very quickly to expatriate employees if one is getting a worse deal than their peer. An employee sent on permanent transfer does not get children’s education, support with housing, and other visible benefits of international assignees. If indeed the employee is meant to move permanently, they may not see the need to have the same benefits as someone living temporarily in the same location. But resentment and feelings of inequality can arise if the employee knows they are there temporarily too. This sense of inequality can lead to a bad employee experience, a reduction in employee commitment, and an increase in attrition.
Clients are telling me that employees are talking about their concerns over their experiences with “permanent” transfers. This is causing a bad reputation with mobility and inspiring employees to demand assignment packages when they know they aren’t being moved permanently.
It becomes clear very quickly to expatriate employees if one is getting a worse deal than their peer.
3. Back-to-back permanent transfers are causing real retirement issues.
Unless you are a rare company with a portable defined benefits pension plan, retirement is a big issue for employees on permanent transfer packages. When the employee permanently moves, they transfer to the host country state and company pension scheme. If, however that permanent transfer is really a temporary need, the employee is often not in the assignment location long enough for some or all of the benefits to vest/accrue. This is magnified when the employee is moved again to another location. An employee on several back to back permanent transfers may end up with little or reduced retirement savings.
An employee on several back to back permanent transfers may end up with little or reduced retirement savings.
So, what can you do to prevent these issues from happening?
While we can’t prevent all abuse of permanent transfers, we can lessen the problem. Better governance is the best prevention mechanism. If the business gets to decide which assignment type to use, there is no oversight as to whether the business is picking the right solution long-term for the employee and for the company. However, when there is enterprise-level governance for mobility approvals, more rigor can be introduced.
A proper plan for the immediate cross-border role as well as what would be expected after that role can help pinpoint if the employee will be expected to return home. Additionally, companies can leverage talent planning boards to assess mobility opportunities and help determine if indeed the person’s role is permanently moving to the destination location or is likely to resume at home.
Yet not all companies are set up to review cross border activity at the enterprise level. This is when mobility can help by adopting an advisory approach:
- Form relationships with key business and HR leaders.
- Educate them on the policy types offered and when it is best to use one approach over another.
- Explore the benefits and the pitfalls of using permanent transfers.
If you are asked to move someone permanently, ask key questions:
- Why is this person moving internationally?
- What do you expect will happen after the move?
- Is the employee near retirement?
The answers to these questions might lead you to advise against a permanent move. Present them with facts, especially if the host salary is higher, to demonstrate with comparative cost projections that the permanent move might be costlier than an assignment in the long run.
Mobility is often the most knowledgeable about cross border options and which solutions will work and which ones might present problems. Make sure you share your knowledge to help make good company decisions. If you don’t, the issues with permanent move misuse might boomerang back to you!
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