U.S. Expatriates’ Benefits, Compensation, and Possible Risks

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Multinational corporations have changed their approach to organizing the work of company subsidiaries abroad according to globalization trends (Hon & Lu, 2015). As a result, the number of expatriate assignments increases each year, and managers in multinational companies face a problem of planning the adequate compensation for expatriates and determining possible risks.

The problem is also typical for companies in the United States because the number of oversea positions in American multinational corporations has increased significantly, but the number of persons who agree to take these positions tends to decrease (Larson, 2006; Sims & Schraeder, 2005).

Thus, the topic needs to be discussed in detail because the number of U.S. expatriates reduces in contrast to the increased demand for them in companies, and it is important to understand what aspects are associated with the effective management of U.S. expatriates. From this perspective, the purpose of the paper is to examine benefits and compensation issues as well as associated risks of sending U.S. expatriates oversea.

While exploring the question, it is important to focus on the research explaining proposed benefits. Second, the paper discusses the existing research on compensation strategies, expatriates’ salaries, and different types of rewards. Third, the paper presents the discussion of risks and challenges of attracting expatriates and compensating them abroad.

At the end of the paper, recommendations on managing U.S. expatriates and resolving compensation issues are proposed as a result of analyzing the current research in the field. Opening foreign subsidiaries, the American employers plan to attract talented workers in order to promote the development of the organization abroad.

From this point, U.S. expatriates become the main force of the organization to compete in the global labor market (Warneke & Schneider, 2011, p. 237). In 2005, “over two million Americans” were working as U.S. expatriates, and in 2010, this number was higher in about 800,000 people because of the spread of globalization tendencies over the globe (Sims & Schraeder, 2005, p. 98; Warneke & Schneider, 2011).

Zhang (2013) pays attention to the fact that those expatriates who demonstrate effective results of the work oversea are often discussed as valuable assets for the company because they can be referred to by employers as professionals of the high class (Konopaske & Werner, 2005; Zhang, 2013). As a result, the focus on the talented expatriates can lead to increasing the competitive advantage of the concrete firm.

The other side of this process is the necessity to propose attractive benefits for expatriates. Benefits for U.S. expatriates are a controversial topic because researchers are inclined to discuss expatriates’ benefits along with outcomes for managers and expected revenues in transnational corporations (Leung, Zhu, & Ge, 2009; Van Der Heijden, Van Engen, & Paauwe, 2009).

Thus, benefits for U.S. expatriates that need to be taken into account by managers include the base salary, medical coverage, retirement benefits, allowances as differences in payments, social security, as well as housing and relocation expenses. Determined benefits play the key role in attracting U.S. expatriates for working oversea.

Zhang notes that managers in multinational organizations often face a problem of lacking candidates for becoming expatriates because many employees reject the idea of being sent abroad, they cannot quickly adapt to different cultures, and they do not want to leave their families (Zhang, 2013, p. 180). Therefore, managers often use compensation packages and benefits as means to attract more candidates for working as U.S. expatriates oversea.

Benefits as the part of the compensation package are usually viewed as material ones in spite of the fact that reinforcers to motivate U.S. expatriates to work effectively can be different, and according to Hon and Lu, they are associated with both extrinsic and intrinsic motivation (Hon & Lu, 2015, p. 165). In this context, Bolino and Feldman (2000) state that as managers select candidates for expatriation focusing both on their business skills and willingness to work oversea during a long period of time, expatriates also choose positions depending on the proposed benefits.

U.S. expatriates are inclined to choose positions abroad with the focus on analyzing a range of criteria, including the compensation package, additional rewards, taxes, housing conditions, job responsibilities and duties, situation in the social and political country where they plan to work, and the laws of the country where they plan to live as U.S. expatriates (Bonache, Sanchez, & Zárraga-Oberty, 2009; Chen, Kirkman, Kim, Farh, & Tangirala, 2010).

All these factors can influence the vision of expatriates regarding possible benefits and risks of taking the position oversea. From this perspective, deciding on taking the offer to work abroad, expatriates analyze how proposed benefits can effectively compensate their necessity to adapt to the new situation and change the living conditions.

Konopaske and Werner (2005) state that compensation is a key motivator that can attract an employee to become an expatriate. The same idea is proposed by Jokinen, Brewster, and Suutari (2008), who are inclined to discuss material rewards as critical indicators of success for an expatriate; and as a result, as reinforcers to take the position oversea because of obvious material benefits.

The majority of U.S. expatriates prefer to work in the European countries instead of countries known as rapidly growing economies because the Asian and Middle Eastern markets often cannot provide the American employees with the expected living conditions in terms of housing and medical coverage, and there are more challenges associated with adjusting to the cultural contexts (Chen, Kraemer, & Gathii, 2011; Suutari & Tornikoski, 2001).

From this point, expatriates choose the places to work according to the proposed benefits. However, the size of compensation proposed for U.S. expatriates is not often positively related to the expected difficulties abroad. Sims and Schraeder pay attention to the fact that no more than 50 expatriates from over the globe are usually satisfied with the size of the healthcare coverage or social security provided for them by employers (Sims & Schraeder, 2005, p. 102).

Expatriates often choose to reject completing assignments before the period of expatriation ends because they face such challenges as cultural tensions, conflicts, language problems, issues related to living conditions, and family problems (Chen et al., 2010). As a result, U.S. expatriates reject taking positions in many developing countries because the other U.S. expatriates working in the European countries can have more benefits and more advantageous compensation packages.

When managers choose to transfer U.S. expatriates to oversea positions, they expect that Americans will be able to organize the work in the unit of the multinational corporation abroad more effectively than managers from the local population will. Furthermore, it will be possible to integrate the elements of the American business culture in the units abroad while contributing to the organizational development of the company (Larson, 2006; Warneke & Schneider, 2011, p. 237).

Therefore, the planning of compensation packages to include all the expected benefits and rewards in them is a priority for managers working in multinational corporations. Research indicates that in order to expect revenues for the American company after assigning a U.S. expatriate to the managerial position in the other country, a range of criteria need to be addressed (Bhatti, Battour, & Ismail, 2013; Varma, Toh, & Budhwar, 2006). These criteria should be discussed in detail.

Thus, a manager needs to analyze the employee’s potential and job commitment before selecting the candidate for expatriation because it is a difficult task to motivate expatriates, to guarantee the high-level performance, and to satisfy the employees’ expectations regarding the size of compensation and rewards (Bonache et al., 2009, p. 2136). However, there are situations when expatriates do not address the managers’ expectations because of their failures to cope with such obstacles as culture shock (Bhatti et al., 2013).

They can also experience difficulties with cross-cultural communication, suffer from differences in job responsibilities and duties, and try to resolve problems in families. Managers should select expatriates for assigning them for positions abroad while paying attention to such aspects as the willingness of employees to adapt to local cultures, to develop their skills in cross-cultural communication, and to integrate the local and U.S. business styles to add to the company progress (Bhatti et al., 2013; Konopaske & Werner, 2005; Zhang, 2013).

Moreover, the candidates need to be high-class specialists to complete the tasks within the limited period of time. As a result, the selection of U.S. expatriates can become a critical management problem. It is important for managers to avoid situations when expatriates choose to leave the organization after the poor experience of working oversea (Van Der Heijden, Van Engen, & Paauwe, 2009). Therefore, it is necessary to influence the employees’ attitudes to job while proposing effective compensation packages.

Chen et al. (2011) state that the level of commitment to the organization is directly connected with the organizational behavior of the employee and with the compensation level. Thus, if a person knows that he or she will be effectively rewarded for performing certain activities abroad, the level of commitment to the organization increases, and the character of the organizational behavior can change positively (Adams, Srivastava, Herriot, & Patterson, 2013, p. 483; Larson, 2006).

In this context, expatriates sent to work abroad need to be perceived by managers and employers as the investment or the human capital that increase the competitive advantage of the company significantly while being compensated adequately. Managers can spend more time while determining what motivators can work effectively in this or that individual case in order to contribute to the company’s progress and increases in productivity and revenues.

From this point, compensation size is the other issue that needs to be examined in the context of the U.S. expatriates’ work abroad. One of the main causes to reduce the period of expatriate assignments is the intention to decrease the salary paid to expatriates, and this strategy is typical for U.S. corporations (Konopaske & Werner, 2005; Warneke & Schneider, 2011, p. 238).

The problem is in the fact that the salaries in the United States are discussed as rather high in comparison with salaries typical for similar positions in other countries and compensation packages are also more extensive. In order to avoid income gaps, employers usually pay a base salary for U.S. expatriates (Bonache et al., 2009). The base salary as the basic payment typical for the concrete position in the home country can be viewed as a line according to which managers set other benefits and elements of the compensation package for a U.S. expatriate (Konopaske & Werner, 2005; Warneke & Schneider, 2011).

As a result, a U.S. expatriate usually receives the salary that is not lower than the salary typical for the similar position in the United States. However, there are also exceptions, and they are typical for female U.S. expatriates working abroad. The situation for male and female U.S. expatriates is different not only in relation to the proposition of oversea assignments as the way of promotion and progress in the career path but also in terms of compensation.

According to Varma et al. (2006), female expatriates are rarely selected by managers to take oversea positions in spite of the fact that in many countries, including India, female expatriates can work more productively because of cultural specifics. However, even being invited for working oversea, female U.S. expatriates can face a problem of the salary discrimination (Chen et al., 2010).

As a result, to motivate employees for expatriation and high performance, employers need to guarantee U.S. expatriates the same level of salary and the same compensation package, as it was in the United States, regardless a gender. In order to attract more expatriates and balance the provided compensation with expected revenues, managers need to follow the standardized approach to setting the compensation level along with the individual approach (Leung et al., 2009; Suutari & Tornikoski, 2001).

Furthermore, to persuade and retain employees, managers can develop the compensation package that can be even more extensive and include options that were not previously included in it in order to attract high-class specialists to oversea company units (Hon & Lu, 2015). Such a situation can lead to two negative outcomes. The first one is the necessity for a company to increase the compensation package associated with the concrete position in the company abroad.

Warneke and Schneider (2011) pay attention to the fact that such step is also discussed as disadvantageous for an employer who can hire professionals from the nationals and provide them with the compensation lower than it is in the United States. The second negative outcome is that significant differences in compensations for U.S. expatriates and nationals can lead to conflicts within the organization where nationals work along with Americans (Bonache et al., 2009; Konopaske & Werner, 2005).

As a result, managers need to follow a “no loss” approach while planning compensation packages, and they need to address all factors that can influence the employee’s decision to leave the position abroad or organization because of inadequate compensation (Sims & Schraeder, 2005, p. 101). Therefore, the planning stage is important in compensation management because it can affect the employee’s decision before going abroad and after the first expatriation period was completed.

The important strategy that is used by managers in multinational corporations in order to reduce costs associated with sending U.S. expatriates abroad is the reduction in the term of the assignment for an expatriate. Today, the long-term assignments for U.S. expatriates are often changed with short-term assignments and managerial projects.

Adams et al. (2013) note that the reason is that three-year and five-year assignments for expatriates are rather challenging, and they often do not lead to completing the project tasks effectively. In case of a long-term assignment, U.S. expatriates cannot see benefits of their work, suffering from the family tension, cross-cultural conflicts, inability to analyze the local market, perform duties appropriately, and build cooperation with nationals (Konopaske & Werner, 2005; Warneke & Schneider, 2011).

In contrast, short-term assignments allow focusing on the goal and task completion without adapting to the specific culture in order to become ready for working in the concrete country more than three years. Therefore, managers can choose to change their approach to selecting U.S. expatriates and to planning their work abroad in order to increase chances for expatriates’ high performance and improved profitability of the company units abroad.

The problem is in the fact that many U.S. multinational corporations do not receive the expected revenues because of ineffective management strategies and compensation planning (Jokinen et al., 2008; Suutari & Tornikoski, 2001, p. 390). If employers pay their employees abroad competitive salaries, it is possible to expect positive results, but sizes of compensation packages can grow significantly to address gaps in living standards and typical salaries, and managers need to cope with increasing costs instead of increasing advantages for the company.

Accepting the offer to go abroad and take the position as a U.S. expatriate, employees expect that proposed compensation plans will cover their needs regarding housing, living conditions, medical coverage, and competitive salary. Moreover, they can expect that additional bonuses and rewards if the living conditions are not according standards or allowances are not appropriate to address all the specified problems.

In this context, managers need to propose the individual program for each employee (Jokinen et al., 2008). On the one hand, such an approach is beneficial for an expatriate because the compensation package is determined with the focus on his or her needs (Adams et al., 2013). On the other hand, such approach can be discussed as provocative and rather controversial because the proposed salary as a component of the compensation package can be non-correlated with the average salary within the market.

In this context, it is important to refer to the motives of employees who choose to become expatriates. The research indicates that careerists among U.S. expatriates often cannot receive the satisfaction of their needs and interests because they do not see oversea assignments as potential for their career growth if the benefits associated with the position are not set in detail and proposed fully (Bolino & Feldman, 2000; Jokinen et al., 2008).

However, careerists can also discuss the expatriation as a kind of promotion for them if the proposed compensation package is rather extensive (Adams et al., 2013, p. 470). In this context, careerists among U.S. expatriates expect that they will be paid not only the equivalent to the U.S. salary or local payment but also the bonus (Bonache et al., 2137). As a result, managers pay much attention to selecting the compensation plan and scenario for U.S. expatriates that can be both advantageous for employers and employees.

The other controversial point is the necessity to pay taxes according to several different standards while being a U.S. expatriate. Taxes are usually covered in the typical compensation package, but many U.S. expatriates discuss even the effective tax equalization strategies as a challenge (Sims & Schraeder, 2005, p. 100).

The problem is in the fact that U.S. expatriates often need to pay taxes in those countries where they work if the United States has no agreements with the country, and this fact causes the employees’ dissatisfaction in cases when the taxes are not correlated with the received compensation (Jokinen et al., 2008). Still, according to Suutari and Tornikoski (2001), managers try to resolve the question, while referring to the tax laws according to which U.S. expatriates are expected to pay to the United States instead of to the country where an employee plans to live during the next months.

In this case, the tax equalization principle works for benefits of U.S. expatriates. The choice of compensation strategies for U.S. expatriates working abroad is often associated with a range of risks and challenges because managers from multinational corporations need to analyze a variety of conditions to propose expatriates the attractive benefits and to contribute to the increase in revenues.

The first important risk for both managers and expatriates is associated with the reduction of time of expatriation. On the one hand, the short-term assignments are more cost-effective for American companies because of the absence of necessities to provide U.S. expatriates with houses and increased compensation packages during a long period of time (Bonache et al., 2009).

On the other hand, those U.S. expatriates, who spend oversea not enough time for learning the aspects of the local market and business environment properly, can demonstrate poor results regarding the task completion (Bhatti et al., 2013). Failures in understanding the local business specifics, cultures, customs, communication patterns, and customer needs lead to failures in oversea projects and inabilities to adopt business and managerial models in local company units.

It is important to state that the expatriate failure can cost more than $2 billion annually for the U.S. company because expatriates demonstrate the lack of cultural awareness, become dissatisfied with the provided compensation, fail to adjust to the new working situation (Chen et al., 2010; Sims & Schraeder, 2005, p. 99). Failures in performance are direct consequences of choosing short-term assignments because employees do not have enough time to learn customs and cultural contexts.

In order to perform effectively and to guarantee the organization development, expatriates need to orient in the environments where they work. Therefore, while having short-term assignments, U.S. expatriates seem to require the additional intense training for working oversea, and this training is associated with spending more resources on covering job positions abroad (Hon & Lu, 2015).

It is a risky strategy for managers to cover costs associated with salaries for expatriates with references to the period of time spend oversea. The first obstacle is the impossibility to adjust to the culture, and the second obstacle is the limitations and stress imposed on the expatriate who needs to complete the assignment within the certain period of time with the positive result and without the adequate training (Bolino & Feldman, 2000; Chen et al., 2011).

U.S. expatriates as representatives of the highly individualist culture need to know how to work in cultural contexts where other principles of cooperation can work, as it is in India and China (Chen et al., 2011, p. 3584). From this point, the reduction in time of expatriation and periods of assignments cannot guarantee positive results for managers who need to spend more resources in order to address expatriates’ needs and for U.S. expatriates who are expected to adapt to the new culture and environments during an extremely short period of time.

The other risk is the provision of inadequate benefits and compensation packages to attract expatriates for working abroad. The research shows that there are many situations when managers fail to develop the effective compensation scenario because of impossibilities to determine the goals for the assignment and detect conditions that can influence the U.S. expatriates’ satisfaction associated with working abroad (Chen et al., 2010; Hon & Lu, 2015; Suutari & Tornikoski, 2001).

The compensation package and proposed benefits can be discussed as inappropriate when U.S. expatriates note the significant inequality in the salary typical for the performed responsibilities in the home country, when they cannot cover costs associated with housing, and when their medical coverage does not include the services needed for the concrete region of the world (Suutari & Tornikoski, 2001; Warneke & Schneider, 2011).

It is also possible to speak about the problematic situation when the proposed salary is lower than the average local salary paid for similar duties, and when no other benefits, allowances, and bonuses are proposed for U.S. expatriates (Van Der Heijden et al., 2009, p. 833).

According to Suutari and Tornikoski, more than 75% of expatriates noted that their salaries were rather inadequate in comparison with the salaries of other managers holding the same positions, and more than 80% of expatriates noted that they experienced problems while striving for equality in payments (Suutari & Tornikoski, 2001, p. 390).

Motivation and job satisfaction in expatriates can be promoted only in those cases, when appropriate compensation packages are proposed in order to help employees cope with experienced challenges. One more risk is the ignorance of such factors as the role of the family in making a decision regarding going abroad to complete short-term and long-term assignments.

Larson (2006) notes that families influence the decisions of expatriates regarding continuing the work abroad significantly, and the basic factors that can have an impact on the decision are few benefits, low compensation, inadequate housing conditions, and tension in the cross-cultural relations and communication.

Having the poor experience associated with the mentioned factors, more than 25% of expatriates choose not to return to company units abroad or choose to reject other offers to work oversea (Hon & Lu, 2015; Leung et al., 2009). The increases in foreign sales and the focus on building multinational teams contribute to the development of new managerial strategies.

New strategies are also necessary to improve managerial approaches to cultural adaptation. It is also reported by Bhatti et al. (2013) that the success in the adjustment to the cultural context and the decrease in the stress is possible when families play the key role in helping employees to adapt to new conditions.

If a U.S. expatriate is not satisfied with the proposed compensation package or provided benefits cannot address the needs of the employee’s family, a person can choose to leave the position in situations when the level of tension is significant, and offered benefits cannot be correlated with the experienced problems and stress.

The modern tendencies in the development of foreign marketing relations and associated globalization trends are often viewed as causes of focusing on the role of the U.S. expatriates in the global labor market. The current research in the field of expatriates’ compensation demonstrates that the main motivating factor for U.S. expatriates to go abroad is a size of compensation and guaranteed benefits.

If a manager fails to plan the compensation effectively and attract an employee to become an expatriate, a transnational company can face a significant management problem because U.S. expatriates are often dissatisfied with proposed conditions, and they often choose to leave their positions oversea if they cannot address their career goals or expectations regarding the standard of living.

In this context, it is possible to propose several recommendations to help American managers to cope with risks and issues connected with expatriation. The first recommendation is associated with the changes in the compensation planning used by managers for U.S. expatriates.

In order to attract more professionals for working oversea, managers should propose financial rewards and compensation packages that are comparable with both U.S. salaries and local salaries. If managers cannot provide U.S. expatriates with high salaries, the compensation packages need to be extensive, and expatriates need to receive opportunities to address their needs in housing as well as language and cultural training. In this case, it is possible to look forward to increases in motivation and desire to cooperate.

The second recommendation is based on the idea that proposed benefits are often non-correlated with the situations experienced by U.S. expatriates in different cultural contexts. Thus, much attention should be paid to analyzing the set of benefits for a U.S. expatriate from the individual perceptive.

The third recommendation is the revision of the managerial approach to selecting U.S. employees for the expatriate position. In order to guarantee that an employee will succeed in the company unit abroad, it is necessary to propose the expatriation assignment as an opportunity for promotion. Employees need to be motivated not only with references to benefits and other material rewards but also with references to personal and intellectual rewards.

References

Adams, J., Srivastava, A., Herriot, P., & Patterson, F. (2013). Careerist orientation and organizational citizenship behavior in expatriates and non-expatriates. Journal of Career Development, 40(6), 469-489.

Bhatti, M., Battour, M., & Ismail, A. (2013). Expatriates adjustment and job performance. International Journal of Productivity and Performance Management, 62(7), 694-717.

Bolino, M., & Feldman, D. C. (2000). The antecedents and consequences of underemployment among expatriates. Journal of Organizational Behavior, 21(1), 889–911.

Bonache, J., Sanchez, J., & Zárraga-Oberty, C. (2009). The interaction of expatriate pay differential and expatriate inputs on host country nationals’ pay unfairness. The International Journal of Human Resource Management, 20(10), 2135-2149.

Chen, C., Kraemer, J., & Gathii, J. (2011). Understanding locals’ compensation fairness vis-à-vis foreign expatriates: The role of perceived equity. The International Journal of Human Resource Management, 22(17), 3582-3600.

Chen, G., Kirkman, B., Kim, K., Farh, C., & Tangirala, S. (2010). When does cross-cultural motivation enhance expatriate effectiveness? A multilevel investigation of the moderating roles of subsidiary support and cultural distance. Academy of Management Journal, 53(1), 1110–1130.

Hon, A., & Lu, L. (2015). Are we paid to be creative? The effect of compensation gap on creativity in an expatriate context. Journal of World Business, 50(1), 159-167.

Jokinen, T., Brewster, C., & Suutari, V. (2008). Career capital during international work experiences: Contrasting self-initiated expatriate experiences and assigned expatriation. The International Journal of Human Resource Management, 19(6), 979-98.

Konopaske, R., & Werner, S. (2005). US managers’ willingness to accept a global assignment: Do expatriate benefits and assignment length make a difference? International Journal of Human Resource Management, 16(7), 1159-1175.

Larson, D. (2006). Here we go again: How a family’s cross-cultural and repatriation adjustment relates to the employee’s receptivity to future international assignments. S.A.M. Advanced Management Journal, 71(2), 46-57.

Leung, K., Zhu, Y., & Ge, C. (2009). Compensation disparity between locals and expatriates: Moderating the effects of perceived injustice in foreign multinationals in China. Journal of World Business, 44(1), 85-93.

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Suutari, V., & Tornikoski, C. (2001). The challenge of expatriate compensation: The sources of satisfaction and dissatisfaction among expatriates. International Journal of Human Resource Management, 12(3), 389-404.

Van Der Heijden, J. A. V., Van Engen, M. L., & Paauwe, J. (2009). Expatriate career support: Predicting expatriate turnover and performance. International Journal of Human Resource Management, 20(1), 831–845.

Varma, A., Toh, S., & Budhwar, P. (2006). A new perspective on the female expatriate experience: The role of host country national categorization. Journal of World Business, 41(2), 112-120.

Warneke, D., & Schneider, M. (2011). Expatriate compensation packages: What do employee prefer? Cross Cultural Management, 18(2), 236-256.

Zhang, Y. (2013). Expatriate development for cross-cultural adjustment: Effects of cultural distance and cultural intelligence. Human Resource Development Review, 12(2), 177-199.

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U.S. Expatriates’ Benefits, Compensation, and Possible Risks

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