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The Balance Sheet
According to World Bank, the average base salary for an average person is South Korea is around $20K per year, whereas the average salary for someone in the United States is around $46K. However, this does not mean that the expatriate from the US will be taking a pay cut, or a pay increase just by looking at these statistics alone. Other factors are involved when deciding on a fair compensation package. The balance sheet is one way of determining the fair value of an employee’s compensation package.
When working in another country, there could be many monetary benefits, meaning things in the country such as the cost of living or housing cost a lot less for an expatriate. There could also be negative benefits, meaning that things in the new country are more expensive. The balance sheet is used to level or even out the expatriate’s compensation package. Positive or negative differentials are applied to determine an expatriate’s true compensation. Under balance sheet compensation policies, an expatriate will receive an itemized printout of allowances from their company. These allowances vary from employee to employee and mostly depend on an employee’s job title, US base salary, country of assignments, and family status. All factors such as food, housing, services, transportation and others are compared to that of an American family and allocated appropriately. Time away from family and friends for the company’s sake may be worth something to the expatriate; this is why the majority of expatriates will try to receive as many allowances as possible so that their trip overseas is not going to ruin them mentally as well as financially. However, “These relatively high allowances remove the incentive for Americans abroad to save money by investigating the local marketplace, using the same services as colleagues at work, or purchasing local products.” (source 1) It is hard to understand why US companies then will work hard to train expatriates in adapting to a different culture, when the compensation packages these employees receive reinforce contradictory behavior. When the balance sheet approach offers a high allowance, repatriation, or coming back to the US, will sometimes be very difficult for expatriates.
Base Salary
An expatriate's salary can be determined by using one of the four techniques; salary build up, salary purchasing power parity, cost of living allowance, and local market. The salary build up approach is a way to compensate expatriate employees by using the current market home salary as a base in calculating the entire compensation package. “The purpose of the build-up approach is to maintain internal equity between countries and to equalize the impact of differences between country tax rates. This ensures that expatriates neither lose nor gain as a result of tax treatment in the host country.” (source 3) This approach will deduct taxes from the home country to determine an appropriate salary, as well as compensating for hardship, cost of living, and exchange rate differences. The salary purchasing power parity is a way to compensate expatriates by putting them all on even levels of reimbursement despite an expatriate’s nationality or geographical location. “The purpose of the SPPP approach is to ensure parity in the level of the purchasing power of the salary of expatriates doing the same job at the same level in different parts of the world, taking hardship, cost of living, and exchange rate differences into account.” (source 3) The SPPP is mainly used by companies who have large numbers of expatriates every year working around the world. A single global pay scale is established and then depending on the country, a cost of living and other costs are then added to that fixed salary. This package is then taxed in the host country (US). The Cost of living allowance approach maintains the expatriate’s home salary, while adding a separate allowance for the cost of living and or hardship premium. This package is also taxed in the home country. Local market is a way to compensate expatriates by paying the locally set expatriate pay rate. This method is usually only used when there is a high level of expatriates employed in a single area. The local market method may also be a good way to be compensated if the cost of living is so much more than in your home country.
Mobility Premium
The mobile premium allowance is an option of reimbursement or compensation to an expatriate. It allows for the international mobility of an employee and their family. The purpose of the mobility premium is to provide compensation to the employees due to the difficulties and problems related to the move. “It is usually expressed as a percentage of annual base salary (between 5% and 15%) and generally varies depending on whether it is an intra-regional transfer or an intercontinental transfer.” (source 4) Currently this premium is generally not issued by many companies, or they are trying to erase it from being an option in a compensation package.
Hardship Premium
While working in South Korea, you may or may not be undergoing less than your normal standard of living. Aligent has a program and way in which these expatriates are compensated for having to live in these conditions. A “hardship allowance,” may be allocated as a cash allowance or bonus added onto your base salary. “Companies define this net payment as a percentage of annual base salary usually between 5 and 50%, but it can be even higher when combined with a foreign service or mobility premium.” (Mercer, 2008) This extra money is used to compensate or entice the expatriate for working in conditions which may be harder for most individuals to do.
Goods and Services Differential
Due to the fact that foreign exchange rates fluctuate regularly the “goods and services differential” is used to balance or even out your pay when the exchange rates are changing day to day. A smaller differential is paid when your home country’s currency is strong when compared to the host country, and larger differential is applied when your home currency is weaker than the host country. This means that if the US dollar was stronger than the Korean Won, you could in a sense buy more goods in South Korea for your dollar. Where as if the US dollar is weakening against the Won, you will not be able to buy as much in Korea, and you should be due a goods a services premium. See (Molnar, 1997).
Housing
The right house for you and your family is very critical to your success as an expatriate. Aligent has teamed up with Airinc., in order to provide you with the best of service in the housing market of South Korea. The following information and benefits are included: See (Airinc., 2008)
*Comprehensive data for the host city
*Realtors to help assist you with any questions
*Market experts to assist you
*Salary level housing statistics, to ensure good conditions
*Location profiles, housing tables, and extended reports
Additional Benefits
Aligent’s benefit package includes: see (Job description)
*Five working days a week
* Flexible work hours
* Transportation allowance
* Lunch meal allowance
* Educational assistance for employees and dependent children
* Housing interest subsidy program
* Medical expense and insurance reimbursements
* Medical check-ups
* Group life insurance
* Congratulatory/condolence leave and payments
* Cultural and sports activities subsidies
* Resort facilities
* Service awards
* Gifts (Birthday, Chusuk, Sulnal)
* Emergency loans.
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