The Return of the Expat Allowance

salariesGiven the recent focus on the economic crisis in financial news reporting, many headlines in the area of global mobility were about reductions of expat costs and, more specifically, of expat compensation packages. At the beginning of this year however, several sources predicted possible changes to the cost reduction orientation, arguing that talent scarcity will force organizations to provide more to attract and retain the people they need.

Recent news seem to confirm these forecasts. For example, Reuters, CNBC and Firstbiz news portals argue that global companies with subsidiaries in China have started paying its expats hardship allowances to compensate for high pollution rates. Specifically, the annual survey by the American Chamber of Commerce in Beijing showed that nearly half of the foreign companies say that air quality problems are driving foreign talent away from China. Companies are trying to deal with the problem by providing extra hardship allowances. For example, Panasonic is referred to as the first foreign company to declare paying pollution allowances to attract an international workforce.

Naturally, the idea of paying hardship allowances is not new. Multinationals have been introducing hardship allowances into expat compensation packages for a long time, trying to make up for difficult climate, political unrest, lower quality of living and other possible risk factors. However, is it possible that hardship allowances are becoming more relevant and pronounced than before?

With globalization and expansion of businesses still on the rise, companies find themselves in increasingly tough competition for new opportunities and talent. Given the tempting potential in emerging markets, as well as the worldwide rise of political instability (with a few recent examples being cases in point), multinationals need to attract and retain more and more employees in ‘uneasy’ destinations. As such, hardship allowances turn out to be quite handy and seem to be used more often. For instance, large global employers such as British American Tobacco have recently reviewed their expat allowances, providing extra cash for employees deployed in countries with political instability and economic hardship.

In light of the aforementioned factors, it appears less likely for expat compensation to be further reduced. Instead, it looks like it is time to start talking about the return of the expat allowances!

2 thoughts on “The Return of the Expat Allowance

  1. An interesting post Sebastian. I’ve heard about these hardship allowances especially in China. It is not surprise that the severe pollution is driving away expats. Their health is more likely to be affected and expat medical insurance is most definitely going to be required. I think these hardship allowances are fair and just and needed. China’s economy is fast growing and there are many opportunities there. Expats are needed there to boost the economy.

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