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In a World of Pay

She’s an American superstar who wants to work in Europe.

He’s the CEO of a German company who wants her pizzazz. But

can Typware AG pay Anne Prevost anything like what she

expects?

by Bronwyn Fryer

Bronwyn Fryer is a senior editor at HBR.

Renate Schmidt, the head of human resources, stood frowning in front of her office window, gazing across the

Stuttgart hills and the green Swabian Alps from her lofty perch on the 15th floor of Typware’s headquarters. It

was late afternoon, and the gathering humidity lay over the hills. Thunderheads were threatening in the

distance. Those clouds look like I feel, she thought. About to burst.

She walked back to her desk and sat down in the cool leather chair, glaring at the telephone. The problem she

faced was like a huge knot—and every time she tried to unravel it, the knot grew tighter.

Jürgen Mehr, Typware’s European head of marketing, had just called to voice his displeasure about a prospective

new hire—the very candidate he had most favored. Anne Prevost was the director of marketing at an American

software company, Xon Technologies, that had lately been making inroads into many of Typware’s worldwide

markets. As the brains behind Xon’s 2002 advertising campaign, Anne had engineered a huge uptick in sales

nearly single-handedly, much to Typware’s dismay. Now she was ready to jump ship, provided the German

software giant made her a good offer. She would be, without a doubt, a brilliant catch.

But when Jürgen heard what the company was considering offering her, he lost his temper. “Renate, 244,000 is

simply exorbitant!” he spat. “It’s almost as much as I make. This isn’t fair, and it’s humiliating. What is it with

these eigennützige Amerikaner, anyway? Selfish billionaire CEOs. Big armies. Economic hegemony. Do they

think they’re entitled to everything? I will speak to Thomas Gutschein about this.”

Renate took a deep breath, bracing herself for an argument. “Jürgen, please,” she began. “Think about this. She

already has another offer from that start-up, Seistrand Systems. It includes a lot of stock options. I’m sure she

would rather come with us, but we have to take that into account. Our global head of marketing’s eager to hire

her, and I think Thomas will say that we should consider what she’s worth to our business—and how costly it

would be to have her go to a competitor. You’re the one who said that this is a critical role. Anne is the best

possible candidate for it.”

It was true. Jürgen—like every other senior executive—had been very impressed with Anne. She demonstrated

finesse and a deep understanding of the global software industry. An intelligent, careful strategist, Anne had

made her mark working in the cutthroat ERP software business, eventually reporting to a famously tough CEO.

Along the way, she had garnered armloads of accolades, not only for her marketing creativity but also for her

division’s performance under brutal economic conditions. She spoke excellent German, having studied in

Hamburg during her junior year abroad and worked for a German multinational in the early 1990s. During a

dinner on the evening before Anne departed for the United States, Thomas, the CEO, had told Renate and

Jürgen that Anne would be a fine addition to the company.

“I know she is good,” Jürgen continued, sighing into the receiver. “But this salary is too high.”

“We’re trying to match the value of the stock options that Seistrand is offering,” Renate explained. “The amount

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is not so out of line when you consider the cost-of-living difference. Things are much more expensive in Europe

than they are in the U.S. Is it a fair market price for someone with her experience? It’s difficult to say. But I tell

you, she’s a real professional. She knows what she’s doing.”

Jürgen was silent. Ever mindful of Typware’s shifting bottom line, he was notoriously conservative about

salaries, particularly in international negotiations. Renate secretly believed that Anne’s stipulations were on the

audacious side, but she also believed in following the CEO’s direction.

“I understand your concerns,” Renate continued. “I have trouble approving it myself.” There was a long pause.

“Still, you know our strategy is to increase our international revenues by 10%. This position is strategic. Thomas

will say we have to pay what it takes.”

“Remind me why she is so interested in joining us?” Jürgen grumbled.

“Xon can’t promote her. She says there’s no more upward mobility for her at the company, and she’s not

satisfied with the lateral position she has been offered. Seistrand wants her, but the company is small and its

stock is highly leveraged, so that presents risks. And she’s very interested in the idea of raising her sons in

Europe. Wonderful educational opportunity and so on.”

“And her husband? Is he being transferred here?” Jürgen asked.

“No husband.” Renate let it stand at that, as she imagined Jürgen’s eyebrows rising.

“All right, Renate,” Jürgen said finally. “I still intend to speak to Thomas about this. And I can’t say I support this

decision, even given this woman’s credentials.” He hung up with a loud click.

The View from the Top

Renate massaged her forehead, then pushed her hand through her thick hair. She rose and reached again for

the telephone receiver, its earpiece still warm. She called Thomas’s assistant and asked whether he was

available for coffee that afternoon. He wasn’t, the assistant replied. But his lunch appointment the next day had

just cancelled.

Precisely at noon, Renate and Thomas stepped from their building and walked to the Königstraße, the upscale

retail district in the center of the city. The long, colorful street, closed to traffic and lined with a row of emerald-

leafed trees, was crowded with shoppers, students, and people out for a long Mittagspause. Guided to a table at

the back of a comfortable Spanish restaurant, Thomas and Renate sat down—Renate first glancing around to

make sure no other Typware employees were there.

“You want to talk with me about the American hire—Anne Prevost,” Thomas began.

Renate nodded. “Jürgen spoke with you?” she asked.

Thomas responded with a curt nod of his own. “I told him I would consider his comments. I also pointed out that

we have been looking for the right person to fill this position for a very long time. We can’t wait much longer. I

understand she is getting impatient. And I know that she needs to be compensated correctly if we are to

relocate her here.”

“True,” said Renate. “But this salary request is for nearly as much as Jürgen himself makes. If we pay a person

who is just coming into the company that much, it will make others who have been with us for a long time feel

that we don’t care about them.”

“Well, Renate, in this case, there is much to consider,” Thomas explained. “Prevost is probably trying to figure in

differences in tax rates, inflation, benefits, floating currencies, and other items. She probably has stock options

and a bonus package that she would give up to come here. And, as you know, the United States does not have

subsidized health care or educational support. That’s why they have very high salary expectations.”

“Yes, Thomas,” Renate said impatiently, “I understand. But I am concerned that too many people are already

asking for much more than the job warrants. I’ve told you before that our salary system is really out of order.

Everyone should be paid the same for doing equal work, don’t you think?” She paused, having introduced the

real subject she wanted to discuss.

“I know you feel strongly about that,” Thomas replied calmly. “And in theory, it’s true enough. But certain jobs

are just not ever going to follow the rules, especially at a company in our position.” He paused. “I’d like you to

do some research, Renate. Come up with a salary and benefits recommendation that you think you—and this

woman—can both live with.”

Sensing she would get no further, Renate allowed the conversation to drift. She reported on other personnel

matters of interest to Thomas. Only after lunch, when they were parting ways at the office, did Thomas return to

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the Prevost matter. And even then it was merely to remind Renate of his request. He thanked her for her

company and said, “I’ll expect your recommendation by tomorrow afternoon.”

What’s Fair?

Back at her desk, Renate pulled out her Anne Prevost file and glanced over the notes she had jotted down

during her phone call with Jürgen the day before. It struck her suddenly how similar his complaints were to ones

she had heard six months earlier, when the company’s German CIO stormed into her office, threatening to quit.

“I just found out what the CIO in Japan makes,” he had announced. “It’s twice as much as what I make, but we

both do the same work. This is completely unfair! I’m going to speak to Thomas.”

Renate had privately agreed with him. But despite her discomfort, she did her best to explain that Typware had

no choice but to pay market rates for labor. “You’ve been to Tokyo,” she noted. “A cup of coffee there costs

double what it does in Stuttgart. Four times what it costs in Chicago!” Even so, it took some time to calm him

down; in the end, he got a 10% raise.

“Things were never this complicated at Lesom,” she thought. Her previous employer had had a very strict, albeit

generous, pay grade system; salaries did not vary substantially from country to country. There was never any

debate about what the market supposedly paid or which geographical regions were most expensive. If an

employee was not satisfied, he or she simply got a job elsewhere.

Typware was the opposite. Pay was not rationalized at all, and Renate had noticed increasingly troublesome

salary and benefit disparities among the managerial ranks. She had also discovered that female and minority

employees made less than their white male counterparts. Was that also to be explained by market forces? While

Thomas had agreed to rectify the most glaring disparities, he had seemed uninterested in stabilizing salaries in

general. Typware’s market was much too competitive, and gaining a strong toehold in international markets too

important, he had argued, to apply any kind of monolithic pay scale. Besides, in his experience, such systems

just didn’t work.

Renate swiveled around to her computer, entered a series of passwords, and pulled up Typware’s HR

information.

Of the company’s 4,800 employees, 85% were in Germany and were paid according to fairly well understood

market rates. But since 1996, Typware had ventured aggressively into international markets—not only in France,

Spain, Britain, and the Netherlands, but in North and South America, China, India, Russia, Australia, and Japan.

The consultants that had helped to negotiate salaries and benefits for overseas employees had recommended a

variable set of standards depending on the employee’s location. Most expatriates received the equivalent of their

German salary plus enrollment in local health care programs, as well as contributions to their German social

security and retirement plans. In most cases, the salary had been more than sufficient, given Germany’s high

cost of living.

Nevertheless, individual expatriate packages had become increasingly complicated over the years. Per diem

expenses varied according to country; each case was “special.” Two years before, Colombia’s country manager

had insisted on a 15% “danger pay” salary increase after learning of a kidnapping attempt on an expatriate

acquaintance. He had also wanted more money for a German–Spanish private school and around-the-clock

bodyguard protection for his twins. He made the case for more household help, given the level of required at-

home entertaining. And he pointed out that, after two years, his base salary increases were not keeping pace

with Colombian inflation. Renate had tried to hold firm, but Thomas—eager to retain experienced managers and

Typware’s hard-won global advantage—had given in.

Since then, it seemed that exceptions for expatriates had spiraled out of control, despite Renate’s efforts to

apply a modicum of consistency. Moscow’s manager of operations had insisted on a chauffeur. The Chicago

regional director required college tuition fees for his son, making the argument that universities were paid for in

Germany. The manager based in India complained that health care there was insufficient compared with German

standards and wanted compensation for premium care. As a result of these exceptions, some expatriates had

boosted their total salary and benefits by more than 30%, while others had seen their compensation fall behind.

“Now this American will complicate things further,” Renate worried, as she continued scanning various

managers’ salary files.

All Good Questions

Typware had never hired a foreign executive to work at headquarters. With no history to guide her, Renate felt

completely at a loss. She had not used a recruiting consultancy to assist with this hire, so she had no help from

that quarter. Now, hoping her past business would have earned her a favor, she picked up the phone and called

Rainer Barth, her contact at the consulting firm she routinely engaged.

“Hier ist Barth,” he answered.

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“Rainer,” Renate began, “I would be very grateful for some advice.” She described the situation.

Rainer listened, then started asking questions. “What kind of retirement plan does she have in the U.S.?”

“I don’t know,” Renate replied. “American social security, of course. And Xon probably contributes to a plan.”

“She will not be able to contribute to her U.S. social security if she comes here,” Rainer mused. “And she may

not qualify for a German social security plan. So you will want to offer her a pension plan that allows her to

generate an equally meaningful benefit.” He then asked, “Is Anne married? Does she have any children?”

“She is divorced and has two sons. Seven and 11,” Renate said.

“And they will enroll in a German school?”

“I assume so. Unless they go to a private German–American school.”

“It would be free if they enrolled in a German school. If she prefers a private school, or if they go to college in

the U.S., she may want you to contribute something to their tuition. Does she have other family

obligations—older parents, for example? If she pays for a retirement or rest home, you must consider that, too;

it costs very little here. She may want some help for that.”

Renate groaned. “And what else?”

“She probably has executive medical coverage,” Rainer added, “which we do not have here. Find out whether

anyone in the family has a special health condition. U.S. medical care is generally superior to what we offer

here. If there is a condition, you may want to compensate additionally for care.”

“Rainer,” Renate said, “There’s a big problem with all of this. I understand that she wants to be paid fairly to

keep up with German salaries, but these extra things will mean she is paid more in the end than her peers and

perhaps even than her boss. We do not want resentment. Some managers are already complaining.”

Rainer thought for a minute. “Yes, it is complicated.” He paused, “Can you contact this woman tonight?”

“Of course.”

“Call her and find out her answers to my questions. I will do some research on what my other clients have done.

We’ll talk in the morning, and you will have your report done by the afternoon.”

“Danke schön, Rainer.”

“Bitte sehr, Renate. Don’t worry. We can make this work.”

Past the Eleventh Hour

At midnight, Renate phoned Anne in New York, hoping she would be home from work by then. One of Anne’s

sons picked up. “Maaawm,” he shouted so loudly that Renate winced and pulled the receiver from her ear.

“Some lady with an accent is on the phone!”

When Anne came on, Renate immediately remembered why she had been so impressed. There was something

calming, genteel—almost European—in her voice. Not like that son, Renate thought.

Renate explained that she was working on a compensation package for Anne and ran through the questions that

Rainer had given her. Anne said she had assumed her children would attend a German gymnasium. Renate

breathed a silent sigh of relief; at least there would be no additional education costs for now. But Anne added

that she was paying the bulk of the $3,000-per-month fee for an assisted living facility for her mother and was

concerned about receiving good health care for her seven-year-old son, who suffered from asthma and various

allergies.

Renate tried to be conciliatory. “Anne, you know we are very interested in hiring you, but you understand that

developing a compensation package is quite complicated,” she said. “We hope that you will be willing to

compromise on some issues and to be patient for a little while longer.”

Anne’s voice remained pleasant but took on a firmer tone. “Yes, of course,” she replied. “But I have another

very good offer and can’t keep them waiting forever. You understand. When do you think I can expect to hear

from you?”

“Soon,” Renate demurred. “Sometime this week.”

Anne thanked Renate for calling, and Renate hung up, exhausted. “Meine Güte,” she thought as she headed up

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to bed, “this is not getting any easier.”

No Easy Answers

As promised, Rainer called the next morning. But the information he had was not very helpful. “It seems no one

here has come up with a solution to the exact situation you are facing,” he said apologetically. “So I am pulling

together a quick benchmark analysis on your broader issue, which my assistant will e-mail to you later this

morning. Of the five largest multinationals based here, three have uniform pay scale systems like the one you

had at Lesom. A fourth currently has its international salary system under review, so I was not able to discover

anything very specific about its policies. I am still hopeful of getting information about the last one.”

Renate sighed. “Well, thank you for trying, Rainer,” she said. “It looks as if I’ll have to sort this out myself.”

“I wish I could be of more help,” Rainer said. He sounded as though he were anxious to get off the phone. The

thought occurred to Renate that, as a client, Typware might be more trouble than it was worth. “I’ll keep

researching this problem if you want.”

“No, thank you,” Renate said. “I need to get this report to the CEO very soon. I’ll figure something out, I’m

sure.”

HBR Case Commentary

What kind of international compensation should Typware

offer?

Four commentators offer expert advice.

George T. Milkovich is the Martin P. Catherwood Professor of Human Resource Management at Cornell

University in Ithaca, New York, and one of the founders of its Center for Advanced HR Studies. His newest book,

Global Compensation (Routledge), will be available in 2004.

Typware needs a dose of strategic clarity. “Grow the global market by 10%” and “pay what it takes” seem to be

the extent of CEO Thomas Gutschein’s current vision. The German software company needs to develop a

compensation strategy that is aligned with its business strategy. Its current confused approach allows a

hodgepodge of expatriate deals with no business logic to support them. Does Typware intend to compete as a

German company with a global reach or as a global company with a local touch? Its answer to this question will

guide the way Typware compensates its leaders as well as the way it hires new talent in the future.

Does Typware intend to compete as a German

company with a global reach or as a global

company with a local touch?

The compensation problems that HR director Renate Schmidt faces with foreign assignees are symptomatic of

Typware’s lack of strategy. She holds a weak hand in her negotiations with Anne Prevost, the U.S. candidate.

But if she reframes her problem from negotiating a pay package with Anne, the brilliant catch, to successfully

recruiting Anne to the leadership team, Renate can simultaneously clarify how Typware pays its leaders.

To recruit Anne, Renate needs to expand the focus of her negotiations beyond the strict financials to the total

value Anne will gain in joining the company. For example, a position with Typware gives Anne a bigger, more

challenging role on a global stage; an opportunity to increase her intellectual capital by joining a German-based

global team; a chance for her sons to grow and learn; and so on. These are benefits none of the competitors can

offer.

In her report, Renate should give Thomas a choice between two pay packages to offer Anne, each highlighting a

distinct aspect of Typware’s business strategy. The contrast would encourage the CEO—and, by extension, all its

leaders—to focus on a compensation strategy that advances the company’s success rather than on continually

renegotiating individual compensation packages.

The first package assumes that Typware wants to compete as a German company operating in multiple locations

around the world. It can be based on the widely used conventional balance-sheet approach, which encourages

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assignees to focus on pay trends and living costs in their home and host countries rather than on the company’s

business strategy. To overcome her CEO’s distaste for overly structured plans, Renate should modify the balance-

sheet approach to one that includes a core package and a customized package. The core package would be

intended to meet Anne’s financial expectations, based on her home country’s standards for base pay and

benefits. A customized services account would offer Anne the flexibility to deal with her unique circumstances,

such as elder care for her mother. Renate may also include an arrangement to phase Anne into a German

employee package, depending on the anticipated length of her initial contract. The intent here is to help her

make the transition into the international assignment.

The second approach furthers Typware’s goal of succeeding as a truly global company. It requires a process,

somewhat akin to executive job evaluation, for assessing leaders’ jobs worldwide based on the scope of the job.

Scope is often measured as the revenue or market potential that an employee like Anne might generate given

the complexity of the business environment. Leaders’ jobs are assigned a level, which determines eligibility for

various bonuses and incentives, along with executive medical coverage and other services and allowances.

Renate can calculate base pay and bonuses from surveys of leading multinationals either regionally or

worldwide, rather than basing them on domestic or home country standards.

In choosing between these contrasting approaches, Typware has the opportunity to clarify its strategic intentions

and provide a business-based logic to guide its international leadership remuneration.

Jeffrey Alan Thinnes is the managing director of Manugistics Central Europe, a U.S. software subsidiary based

in Germany. He is also the founder and chairman of JTI, which provides business development, communications,

and public affairs services to companies expanding internationally.

Like the other Typware managers, Renate is frustrated by the compensation differences arising from the

company’s global expansion. Her attitude is hardly surprising. In my experience, top executives too often

overlook the importance of articulating the global strategy, building awareness, and either getting buy-in from

the current management or a new team as their companies make the transition to a global market. Without

better direction from the CEO, Typware’s globalization will encounter substantial internal resistance, resulting in

delays and higher costs. With 85% of its employees based in Germany, and not one foreign executive based at

headquarters, Typware truly needs someone with Anne’s talent and experience to help them get to the next

level.

As head of HR, Renate must shed her wistful longing for the good old days and try to dispel rather than spread

narrow-minded stereotypes. Otherwise, she would be better off serving spätzle in a local Gasthaus, where her

provincial Weltanschauung would be more appreciated.

To keep Anne in Germany for several years, Typware should determine which compensation benefits are

essential and then decide whether the expected advantages of having Anne on board will be worth the cost.

Typware must make the package attractive enough for Anne to accept the job yet leave some merit-based

variables in the pot as incentives for her to deliver results.

To arrive at an appropriate offer, Typware needs to know more about Anne’s package at Xon Technologies. What

is her base salary; what is her bonus; what are the stock option conditions? Which components are guaranteed

or fixed, and which are variable and performance based? If variable, what conditions are necessary to achieve

them—company performance, marketing department performance, Anne’s personal performance? Finally, does

she have special executive perks, such as a company car, an entertainment budget, and so on?

Anne may accept a lower salary if Typware offers a comprehensive package that considers these and other

questions. As an initial incentive, her package should include a 10% increase in base salary over her Xon base

(adjusted for the cost-of-living difference between the United States and Germany), with tax equalization and

exchange rate protection to help ease her transition during the term of the agreement. She should also get a

one-month signing bonus that she can use as she likes to buy household goods for her new residence.

Just like her German counterparts, Anne should be eligible to earn an attractive bonus for achieving specific

performance-related goals. For example, Typware could offer Anne a bonus of 10% at the end of her first

quarter, if management approves her global marketing plan, and a 15% bonus for each 3% in annual organic

sales growth measured one year after her start date. The company could also tailor sales-related bonuses to

achieving growth in regions considered critical to its strategic plan.

As for the specifics of her transfer, Anne’s family situation is an important consideration. Relocation services are

a must; she will need help finding a home and a car (which in Germany can take six months or longer). Typware

should pay all fees and provide support for civic, school, utility, and automotive registrations, local immigration,

work permits, and so on. As a single mother, Anne may need some household support or day care services. One

year of language and culture training for her and her sons would be money well spent, but Typware should

anticipate an annual tuition up to $15,000 per son at an international school if the gymnasium does not work

out. Finally, the company should provide for at least two trips to the United States each year for Anne and her

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family.

Typware must make the package attractive

enough for Anne to accept the job yet leave

some merit-based variables in the pot as

incentives for her to deliver results.

Once she and her sons have adjusted, Typware can renegotiate Anne’s expatriate package and focus new

benefits on performance.

Joseph Yaffe is a global compensation and benefits partner at Latham & Watkins, a global law firm with 1,500

attorneys and 21 offices worldwide. Yaffe is based in Menlo Park, California.

Renate either needs to hire a much more knowledgeable, proactive HR consulting firm or do better homework

herself. In the present pressing situation, she has time for neither, which suggests that she may not be up to

the job of HR director as her company expands.

I would strongly suggest Renate consider

hiring Anne on a temporary assignment basis,

a common practice in German companies.

If Renate were on top of the situation, she would have a much better grasp of compensation practices at other

German multinationals. Armed with better information about competitors’ international hiring policies, she might

easily discover a way to attract Anne without having to pay so much that it raises eyebrows among other

Typware employees.

Renate should focus on Anne’s long-term relationship with Typware in deciding how to hire her. I would strongly

suggest Renate consider hiring Anne on a temporary assignment basis, a common practice in German

companies. Temporary, of course, need not mean six months—it can apply for a longer period. Under this

solution, Anne would be legally hired by and work for Typware’s U.S. affiliate or perhaps even a global “hiring

affiliate” of Typware established expressly to employ people like Anne, but her duties would be those of a

permanent employee in Germany. Typware’s affiliate would deal with the legal paperwork and logistics regarding

her resettlement in Germany, where she would work and live as an American expatriate.

There are a few advantages to this approach. First, Anne may be much more comfortable with the temporary

option. Despite the fact that they spend significant time working overseas, most international executives do not

wish to completely sever their ties with their home countries. This may be the case with Anne, too, because her

mother will remain in the United States. Anne may also want to continue her health benefits under that affiliate

company’s plans, as well as contribute to the U.S. company’s 401(k) plan.

Under this approach, Anne could avoid paying hefty German social security taxes, provided she holds the

position for less than five years. Were she to become a permanent employee in Germany, she would have to pay
35% to 40% of the first 5,000 she earns per month. Under the temporary option, Typware could boost its salary

offer by paying Anne the money that would otherwise go toward these taxes.

Then there’s the issue of income tax. Regardless of whether Typware chooses to hire Anne, or other foreigners,

as temporary or as permanent managers, the new foreign employees will likely be liable for the high German

income tax—46% of income plus an additional 5.5% surtax called a “solidarity” charge—as well as income tax in

their own countries. Many countries, including Germany, have signed treaties with the United States and others

designed to clarify how workers earning income abroad are to be taxed under the regulations of their home

countries and the countries in which they are currently working. Nevertheless, double taxation remains an issue.

Given its global ambitions, Typware will have to think about implementing some kind of tax equalization policy

sooner or later so that its foreign employees do not suffer unduly under a tax burden. For example, Typware

could offer employees like Anne a bonus that would help her cover the difference between her German and U.S.

taxes.

Finally, in keeping with its expansion plans and hunger for international talent, Typware needs to think about

issuing stock options or some other form of equity compensation, like restricted stock units. The company can

begin the process, then issue Anne equity awards once the plan is fully in effect. With this promise, Typware

may be able to offer Anne a slightly lower salary. Given the level of dissatisfaction in the ranks, distribution of

stock options would probably go a long way toward soothing any resentment.

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Dietmar Kokott is the senior vice president of global human resources, executive management and

development at BASF Group in Ludwigshafen, Germany.

As a global corporation with more than 800 expatriate executives living in some 50 countries around the world,

BASF certainly understands Typware’s difficulty. Indeed, there is no simple solution—in part because expatriates

talk to one another about the details of their contracts and carefully study the packages offered by various

companies before negotiating their deals. One delegate may demand a package that includes a bodyguard and

hardship pay, another may want special services for her children, and so on. As a result, expatriate policies need

to continually evolve and leave room for flexibility.

This does not excuse Typware’s haphazard approach to the problem. While such a patchwork of approaches is

typical of many small to midsize companies, it completely fails the consistency test—the application of which is a

core part of any HR manager’s job. While Renate understands this, she is not demonstrating the professionalism

and problem-solving skills needed to help the company apply a more systematic program.

Paying for expatriate support is simply a

necessary cost of doing business. By

developing and enforcing a policy that

everyone understands, we avoid conflict.

At BASF, we make expatriate arrangements in two cases—when we need to employ a specialist whose skills are

difficult to find in the region, and when an executive requires global experience. In these circumstances, we

apply a worldwide policy that is specific, consistent, and transparent, so that everyone in the company knows

what the rules are.

Our employees are integrated into the salary structure of their respective host country, based on both the

employees’ function and the local compensation market. We also guarantee relocated employees a certain

standard of living, based on the employees’ net income in their country of origin. A German working in India

would receive the same net salary, after an adjustment for cost-of-living differences, as he or she would earn in

Germany. Furthermore, BASF provides an additional cash bonus as incentive and also covers the risks resulting

from changes in external factors, such as exchange rates. If the employee lives in a comparatively expensive

location like Hong Kong or Singapore, we pay a host-country salary, which may be higher than the guaranteed

net income in the home country. A cost of living adjustment is carried out in high- and low-cost countries, and

we also subsidize apartment rental if it is more expensive than in the home country.

We invest heavily in integration services to help our employees become comfortable in their new locations as

quickly as possible. To this end, we arrange for employees and their families to visit the country before

deployment and encourage the families to undergo specific cultural training. The more foreign the country is to

the employee, the longer the training period. While an American moving to Germany would receive less than a

week’s training, a German family moving to Korea might train for up to six weeks. Finally, we cover relocation

and storage services, offer loans to pay for any necessary household equipment, and subsidize other costs

associated with local integration.

This can cost BASF between 100,000 to 300,000 annually over and above the individual’s salary and benefits,

but we justify it by asking ourselves these questions: “What would the cost be to the company if we do not solve

this problem?” and “How can we be a global leader if our executives have no global experience?” To us, paying

for expatriate support is simply a necessary cost of doing business.

By developing and enforcing a policy that everyone understands, we avoid conflict. If several people situated

around the world work on a team together, they all understand that each colleague may be earning a different

salary based on their particular skills, knowledge, and value to the company, but they know that our expatriate

policy applies equally.

Reprint Number R0311A

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