HR professionals are often tempted to make quick decisions on housing, despite it being the second most expensive element of expat compensation. We offer some strategic advice.

Housing is the second most costly element in expat compensation

Click here to read the second part of expatriate housing strategy.

Topics covered in this feature: Is the price right?, Everyone demands a seat at the table, Housing in a mobile world, Housing: a strategic choice, Towards an optimised policy

Introduction

HR professionals are often tempted to make quick decisions on housing, with an eye toward recruitment and getting the assignee and family to accept an assignment. In many instances, local management alone bears responsibility for determining an employee's housing guideline and, by extension, the type of accommodation delivered.

However, housing is routinely the second most expensive element of expatriate compensation after tax. It impacts directly on the family's satisfaction and the perceived status of an employee within the local organisation. Host Location Housing speaks volumes, in a very public way, about the philosophy which drives a company's international transfer policy.

For all these reasons companies are increasingly taking more time to construct housing policies that are more closely aligned with their expatriation goals and overall HR strategy.

Is the price right?

In this world of competing interests, dissimilar housing markets, and high stakes recruiting, what are the costs of a flawed decision?

Looking at prevailing rents, the impact of housing decisions to the organisation's bottom line can be enormous. Imagine confronting the choice between offering a married assignee either a one- or a two-bedroom apartment. The price difference between the two apartments is only EUR 500 per month. Why not just say yes, give the family a guest bedroom and get the assignee on board?

Assuming a marginal rate of 45 percent, that small decision brings additional costs of more than EUR 10,000 per year. If the same decision is made for the company's 50 expatriates, the consequence of saying "yes" to an extra room balloons to over half a million euros per year.

On the other hand, pitching the housing standard too low can mean trouble in the recruiting phase. Assignees may balk at the idea of being assigned to a location where they cannot live near the international school, where they cannot have the swimming pool and attached garage they were used to at home or where the commute seems unreasonable. The mission of getting the right person to the right place at the right time has failed.

However, there is a worst-case scenario. An assignee could accept an assignment without a realistic assessment of the housing provided. After a year, the spouse is unhappy, the children are worn out from the long bus rides to school, and the expatriate is more concerned about maintaining peace at home than success in the workplace. The result: assignment failure or possible loss of a highly skilled employee to the competition.

Trapped between costs of that magnitude and assignment failure, how does one navigate to a successful compromise?

Everyone demands seats at the table

Unlike a complex tax calculation or a COLA Index which require knowledge of both Home and Host prices, local housing is a seemingly simple proposition on which everyone has an opinion.

The host HR usually has very valid and specific ideas about where the assignee should live. After all, they know the market best, and are in touch with letting agents, pressures in rent, and new residential areas on a daily basis. These ideas about the assignees housing may be driven by concerns over equity with local peers or by cost pressures.

Home HR tends to view the problem of expatriate housing as a "local" issue – until "their" employee or her family is upset and threatens not to take an assignment because of a disappointing house hunting trip.

Yet a third HR influence, the HQ, knows the long-term career horizon for an assignee, or may want to play a role in ensuring global consistency and cost effectiveness in the housing programme. To the central function, the importance of each housing decision is not about the expedience of a single assignment, but rather ensuring the equitable fulfilment of corporate goals and philosophies.

Recently-returned expatriates or those already on-site, feed expectations of prospective assignees before the plane even touches down. "Your predecessor used to live here," or "If you have children you must live there" are common pieces of advice to every potential assignee before leaving on a "look-see" trip. To the extent the housing guideline is not communicated in the proper context, these initial expectations can often be in stark contrast to the reality on the ground.

Other outside influences include competitive position in the marketplace, local market peculiarities (where is the international school, has another multi-national recently moved 200 expatriates into town?) and the business cycle. All of these elements can conspire to make yesterday's well-thought-out housing guideline look dated and irrelevant by the time a potential assignee goes house hunting.

Last but not least, assignees are bringing a different set of expectations to the search for housing than they did five or ten years ago. In many instances, assignees' home housing is based on two-earner income profiles. Too often, an international assignment leads to the spouse giving up their income. Companies still traditionally offer Host housing based solely on the employee's income. So, an assignee faces a de facto cut in standard of housing by taking an assignment and moving to a housing guideline driven by a single-earner income profile.

Housing in a mobile world

Increasingly, expatriates do not fit the 'out and back' assignment profile. Serial assignees may follow an assignment in Madrid with an assignment in Singapore, which is in turn followed by an assignment to Sao Paulo, Brazil.

As the frequency of serial assignments increases, so too does the need to deliver consistent housing standards from place to place. The challenge here is how to come up with globally equivalent standards of housing in markets with widely varying housing stock.

In order to do so, more than 75 percent of blue chip companies employ independent data suppliers to assist in constructing global housing guidelines according to a recent AIRINC survey. Often the input from outside vendors is used in conjunction with other sources, including local HR, Regional management and local destination service providers. The goal is to create a locally savvy, yet globally coherent housing guideline for expatriate staff.

Housing: a strategic choice

Does a company view an international assignee as a member of the local team, with a different passport? In this case, the company will often opt to have the assignee live amongst local peers, in accommodation typical of the host city, even if this means a mid-floor apartment in the New Territories of Hong Kong or a terraced house more than an hour's commute from a company's Central London-worksite.

Other types of assignees, perhaps within the same company, may be viewed as 'on loan' from the Home Country. In this case, perhaps it is necessary to pay more attention to the Home Standard of housing in order to recruit the right person to the right place. While this smoothes the recruitment and repatriation process, it can lead to vast inequity at the host location between expatriates and locals, and even among expatriates of varying nationalities.

There are many stories of European managers who were jealous of their North American subordinates 'overly generous' expatriate housing guideline. Likewise, Asians housed on an 'Asian' home country standard in Paris are likely to find themselves in a much different circumstance than job-grade-peers from Sydney housed at an 'Australian' home country standard.

Still, other assignees must be considered global talent, most appropriately housed with top management peers in a city, regardless of industry or home country. Senior Executives, for example, are often drawn from an international talent pool. They may have no real 'Home' country, but rather are global resources as likely to be working in New York as in New Zealand. For them, an international expatriate reference group may be the most appropriate driver for Host Location Housing Guidelines.

Given the wide array of choices available for housing, it is important that these factors be considered before making an offer to an incoming assignee. What type of assignment is this, who has ownership of the employee's career plan and what are the factors that will drive the choice of housing?

Towards an optimised policy

A successful expatriate policy must be in harmony with the broader corporate Human Resources philosophy as well as with the organisation structure. A thorough review of what a company wants to accomplish through its international mobility programme is worth much more than external benchmarking with companies whose goals and philosophies – to say nothing of assignee demographics and location combinations – may or may not be similar.

An honest assessment of a company's organisational structure can prompt a decision on the degree to which the policy can be centralised versus decentralised. Likewise, a firm grasp of expatriate demographics (such as seniority of employees, assignment duration and type, and future career plans) can help point the way on the debate about global consistency versus flexibility.

Whether a company is hierarchical or egalitarian will provide the lead on the stratification of housing guidelines. And the role of the international business to the overall corporate bottom line may provide some guidance on the overall level of subsidy provided under a housing programme.

The next article in this series on expatriate compensation looks at the more practical side of the housing debate and investigates the types of housing programmes and the various methods of administration.

John Pfeiffer is the Managing Director of AIRINC Europe (www.air-inc.com)