The Wage Factor

NO issue regarding expat managers possibly generates as much steam as that of the salaries the expats earn: roughly two to three times more than his Indian colleague. Now even parent companies are beginning to feel the pinch. "Earlier only about 1 per cent of the TNC population comprised expatriates. Higher compensation for them had no bottomline implication. But with expat population surging to around 10 per cent, companies have started questioning the rationale of bulging expatriate salaries," says Ritu Sinha of Noble & Hewitt placement agency.

Traditionally, an expat's salary is structured as follows: base (60 per cent) plus bonus (30-40 per cent based on performance) as per the parent company plan. In addition an expat is entitled to a Cost of Living Alllowance (COLA) or a hardship allowance which works out to 10 to 15 per cent of the base salary depending on the city of posting. There is an additional foreign service premium that works out at 20 to 30 per cent of the base.

The salary also includes local benefits like housing, conveyance, medical, hospitalisation plan, education allowance and recreation while retirement and insurance benefits provided by the parent company remain. Thus when an expatriate is posted to a country like, say India, he not only gets the advantage of the favourable exchange rate but his local liabilities like taxes are also taken care of by the company.

But factors like hardship allowance may be losing their rationale with globalisation. A market like India, for example, is now an opportunity for exposure to a new market that any global manager would give his right arm for. Why then pay expatriates more? A relocation allowance should be sufficient. That's the new thinking in TNCs. Companies are working towards scientific measurement of compensation that broadly reflect some kind of purchasing power parity. Regional benchmarking has also begun. There is also growing concern at the cultural implications of salary disparity between expatriate and local salaries at the functional levels. This concern, however, may take sometime to grow into a full-blown issue.