What’s Inside an International Compensation Package?
Negotiating compensation can be tricky in the US, but if you’re offered an international job,
compensation issues grow exponentially more complex.
While packages differ by company, some items appear in most international employment offers:
a housing allowance, help paying taxes, spousal employment help and trips home. Those extra
items can more than double compensation.
Missing a big-ticket item will lower your living standard thanks to the extra costs of international
living, says Geoffrey Latta, executive vice president of ORC Worldwide, a New York City-based
Location matters, too. “The way you negotiate your package and the things you put in your
package are highly dependent on the countries where you go,” says Alain Verstandig, president
of Net Expat, an Atlanta international relocation company.
Here’s what might be in compensation packages of Americans sent to two popular destinations --
London and Shanghai -- as well as negotiation advice:
Culture influences how and when an international salary is negotiated. In the UK, whether the
position is one with a new company or your current firm, start the conversation by talking about
your place on a team, achievements and your added value, and then discuss salary.
In Shanghai, attitudes toward pay are split. “Anyone over 40 would be against talking about
money, but the younger generation is extremely direct about talking about money, so analyze the
age group of the recruiter,” Verstandig says.
About half of companies pay expatriate employees (expats) a foreign-service premium for taking
the assignment, says Mary Ellen Myhr, senior manager at Associates for International
Research (AIRINC), an international human resources consultancy. Going someplace tough to
live? You could also get a location premium.
“Most companies who pay the foreign-service premium pay the same amount -- either 10 or 15
percent -- to all employees, while the hardship premium varies by location,” she says. “In
London, it would be zero. In Shanghai, it might be 5 or 10 percent.”
Cost-of-living adjustments are based on:
The cost-of-living difference between your current and new locations.
What a person with your size family and salary spends on goods and services annually.
Suppose you earn $100,000 and have a four-person family estimated to spend $40,000 on goods
and services. If it costs 30 percent more to live in the new city than in your hometown, you’d get
a cost-of-living adjustment of $12,000, or 30 percent of $40,000.
Housing is a huge issue in Asia, says Fred Schlomann, a Hong Kong-based managing director of
AIRINC. “In Shanghai, there’s plenty of decent housing,” he says. However, areas where you
can live near other expats and international schools are limited and in high demand, he says.
In London, rental housing in good neighborhoods is expensive, according to Latta. You’ll likely
have to choose between living in a smaller home in a central, upscale area and a bigger home
with a longer commute or in less-appealing neighborhood. “Really looking carefully at housing
options is the biggest single thing that will impact your well-being,” he adds.
Family size and corporate rank determine the size of your housing allowance. If you can, visit
the housing your allowance could cover to see if it’s suitable, Schlomann says.
When you work outside the US, you still have to pay US taxes. “There are credits and
exemptions so you don’t end up with double taxes, but the UK is going to tax you and the US is
going to require you to file a return, and the higher paid you are, the more likely it is you’ll be
taxed twice,” Latta says.
In Shanghai, you’ll pay substantial Chinese national taxes and possibly local taxes, but
compensation can be structured tax-effectively, according to Schlomann.
Ask your employer to pay for tax-return preparation and the cost of double taxes (referred to as
“grossing you up”). Before accepting an offer, consult with an accountant familiar with
international compensation, Myhr suggests.
Can’t get tax prep covered? Expect to pay a Big Four firm about $3,500 to prepare your foreign,
US and state returns, plus more fees for advice about minimizing taxes, employee obligations or
When you work in the UK, your family can get free national health coverage. Upper
management professionals may get private coverage as well. In Shanghai, only Chinese nationals
receive national health coverage. Some companies provide international health insurance.
Ask how your family will get basic and emergency healthcare, especially in countries with areas
that lack medical care, Schlomann advises.
If you’re staying less than five years, you can typically opt out of paying into the host country’s
retirement plan. Most companies will continue to pay your FICA so you stay in the US Social
In Shanghai, the Chinese retirement system is only for Chinese nationals. Ask your company for
an offshore retirement plan or an insured retirement program, Schlomann says.
If you hop from one international assignment to the next, you could participate, but never vest, in
several retirement plans, leaving you ineligible for any retirement benefits, Myhr adds.
Just over half of companies will help your spouse find work, Verstandig says. If your working
spouse is going to be unhappy stuck at home overseas, be sure to ask for this benefit. Spousal
assistance also covers help with visa issues and getting the family settled in the new location.
No Room to Negotiate
The more employees a company moves around the globe, the more likely it is to have
standardized compensation packages, which makes it less likely you’ll be able to negotiate
upgrades or additional items.
“The bigger companies try to avoid negotiation,” Latta says. “They feel it would be time
consuming, and if they’re sending six people to London and create different arrangements, those
people will talk to each other and compare.”
You can always ask for what you want, but don’t be too disappointed if you can’t get more than