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ORC International Compensation Services Presentation to West Thames Exchange Club Meeting

ORC International Compensation Services Presentation to West Thames Exchange Club Meeting 10 January, 2001 Siobhan Cummins Ann McLaughlin. About Organization Resources Counselors, Inc. (ORC). ORC International Compensation Services. ORC is a human resources management consulting firm

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ORC International Compensation Services Presentation to West Thames Exchange Club Meeting

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  1. ORC International Compensation Services Presentation to West Thames Exchange Club Meeting 10 January, 2001 Siobhan Cummins Ann McLaughlin

  2. About Organization Resources Counselors, Inc. (ORC) ORC International Compensation Services • ORC is a human resources management consulting firm • ORC works with private sector, public sector and non-profit organisations throughout the world • The roots of ORC go back to 1922, when John D. Rockefeller, Jr. established a staff qualified to give advice in the field of industrial relations

  3. ORC’s Global Presence ORC International Compensation Services New York Chicago Los Angeles London Dallas Sacramento Munich San Francisco Washington, D.C. Paris Singapore Representative Offices Tokyo Osaka Argentina Melbourne Chile Venezuela (Approximately 250 staff)

  4. ORC Provides ORC International Compensation Services • Consulting Services • Networks, Forums, and Meeting Groups • Information Services

  5. ORC's Areas of Specialisation ORC International Compensation Services • Compensation • International • Expatriate • Local • Salary Surveys • General Human Resources • Training, Development and Strategic HR Planning • Organisational Development • Succession Planning

  6. ORC's Areas of Specialisation (cont.) ORC International Compensation Services • Employee Relations • International • Domestic • International Social Policy • Equal Employment Opportunity • Occupational Safety & Health

  7. ORC International Compensation Services International Compensation • Reviews of international assignment policies and practices • Design of policies for international assignees • Seminars for international HR specialists • International compensation roundtables • Surveys • Local national employee relations and compensation data • Data services

  8. International Compensation Data ORC International Compensation Services

  9. Income Taxes Income Taxes Housing Income Taxes Income Taxes Housing Housing Housing Goods & Services Goods & Services Goods & Services Goods & Services Reserve Reserve Reserve Reserve Home Country Salary Assignment Location Cost Assignment Location Cost ORC International Compensation Services ORC International Compensation Data Home Country Purchasing Power

  10. Balance Sheet Methodology Key Objectives • Expatriates kept on the home pay system • Allowances and differentials used to maintain home equity, based on logical and defensible criteria • goods and service • housing • income tax • Neither gain nor lose • Encourages mobility • Administratively simple • Incentives are typically paid • premia • hardship • other allowances

  11. Compensation Policy - Common Practice European North American Source: ORC PPS 2000

  12. Alternative Policy Options: Balance Sheet Advantages • All assignees from same country treated consistently regardless of location • Promotes maximum mobility between locations • Consistent relationship between assignees’ compensation & home colleagues maintained • Assignees maintain home country standard of living • Suits assignments of up to five years • Facilitates repatriation/reassignment

  13. Alternative Policy Options: Balance Sheet Disadvantages • Cannot achieve consistent compensation levels amongst assignees of different nationalities • Compensation levels for assignees usually inconsistent with local levels • For longer term assignments, level & nature of compensation & assignment allowances inappropriate • Administration

  14. Income Taxes } Differential Housing Goods & Services Goods & Services Goods & Services Reserve Home Country Salary Expatriate Compensation Goods and Services Goods and Services ORC International Compensation Services Host- Location Spendable

  15. ORC International Compensation Services Definition of Goods and Services Terminology • Home country goods and services Spendable Income • - The typical amount of money spent on goods and services in • the home country - varies by income and family size. • Goods and Services Index • - The ratio of the costs of goods and services in the assignment • location to similar costs in the home country. • Goods and Services Differential • - The additional payment made to an expatriate to account for • the average cost difference between the assignment location • and the home country • Assignment location Goods and Services Spendable • - The amount needed at the assignment location for goods and • services - the home spendable plus differential

  16. ORC International Compensation Services ORC Home Country Spendable Income Data Sources/Assumptions • Home Country Spendable Income • The amount that a typical individual or family spends on • goods and services at home. • It varies by income level and family size • Data Sources • Government statistical information • Family expenditure surveys: • -Office for National Statistics, “Family Expenditure Survey” • -Institute. National de Statistique, “Enquete sur les Budget des Manages” • -INSEE, “Les Budgets des Menages” • Logarithmic regression • Updates • Alternative options

  17. ORC International Compensation Services Spendable as a Function of Family Size Annual Spendable Income Annual Base Salary

  18. £23,612 54.7% £20,759 £19,153 51.9% 47.2% Spendable IncomeLevel £35,000 £40,000 £50,000 £35,000 £40,000 £50,000 ORC International Compensation Services Spendable as a Function of Income Note: Spendable rises absolutely with income, but declines as a percentage as income rises

  19. ORC International Compensation Services Goods and Services - Weightings UK Note: Data source ORC National Expenditure Profile, April 2000. A category weight is the percentage of spendable income expended on that category, reflecting its relative importance in the market basket.

  20. ORC International Compensation Services Swiss Spendable Income

  21. ORC International Compensation Services Comparison of Weights Category UK USA Netherlands Spain Food at home meat, fish, dairy 8.1 5.2 8.6 19.4 groceries 6.1 6.0 7.2 6.7 fruit & vegetables 3.7 2.6 3.0 6.1 Tobacco & Alcohol 7.9 2.7 3.8 3.0 Personal Care 3.5 4.0 3.9 3.8 Furnishings & household 15.7 16.4 15.5 7.7 Clothing 9.0 11.1 12.1 13.7 Medical Care 1.6 4.7 2.5 3.2 Recreation 20.1 12.9 22.7 9.5 Transportation private 11.8 15.7 11.1 9.5 public 2.9 3.2 1.2 1.6 Domestic service 1.2 3.0 2.4 1.1 Food Away from Home 8.4 12.5 6.0 14.7 Total 100.0 100.0 100.0 100.0

  22. Make-Up of CategoriesU.S. Item Weightings ORC International Compensation Services Weight Category: Fruits & Vegetables A weighting (or “weight”) is the percentage of income spent on an item and reflects its relative importance within its category

  23. Market Basket ORC International Compensation Services • Measures costs of goods & services in the home country and the marketplace of the host city • 175 items • Selection criteria • Representative • Availability • Usefulness for expatriates • Prices collected in two retail outlets • Multiple brands priced

  24. Pricing Surveys ORC International Compensation Services • Conducted every six months in most locations (more often in some, annually in others) • Sales prices not included in survey • Local markets typically not priced • VAT and sales taxes always included • Outlets selected by coordinator and agent using data from ORC surveys of expatriate purchasing patterns • Conducted from the international assignee's point of view • Recently arrived (less than one year) • Does not speak local language

  25. ORC Pricing Agents ORC International Compensation Services • Expatriate living in the priced location • Objective; not employed by or associated with ORC client companies • Recruited and trained by ORC co-ordinators • Regular communication with ORC co-ordinators and NY Production Centre

  26. ORC Market Basket - Priced Items ORC International Compensation Services Biscuits Preserves Canned Soup Rice Flour Cracker Soy Sauce Carbonated Soft Drink Bottled Mineral Water canned Vegetables Canned Fruit Canned/Carton Juice Fresh Citrus Fruit Other Fresh Fruit Fresh Vegetables Potatoes Bean Curd Dried Laver Food at Home Dried Milk Cheese Vegetable/Cooking Oil Bread Sugar Flour Table Salt Rice Macaroni/Spaghetti Dried Beans Breakfast Cereal Coffee Tea Bags Baby Food Chocolate Bar Beef and Veal Pork Lamb Chicken Bacon Knockwurst/Frankfurters Fish Shellfish Salted Salmon Canned Tuna Eggs Butter Frozen Vegetables Margarine Fresh Milk

  27. ORC Market Basket - Priced Items ORC International Compensation Services Tobacco/Alcohol Cigarettes Whiskey Beer Wine Sake Furnishings & Household Operations Scouring Powder Toilet Tissue Light Bulb Insecticide Toaster Electric Iron Washing Machine Vacuum Cleaner Sheet Bath Towel Saucepan Private Residential Telephone Personal Care Laundry, Man’s Business Shirt Dry Cleaning, Man’s Suit Man’s Haircut Woman’s Shampoo, Cut/Blow-dry Sanitary Napkin Toothpaste Razor Blades Deodorant Bath/Toilet Soap Laundry Detergent

  28. ORC Market Basket - Priced Items ORC International Compensation Services Clothing Man’s Business Slacks/Trousers Man’s Two-piece Suit Man’s Tailor Made Two-piece Suit Man’s Business Shirt Man’s Undershirt Child’s Jeans Boy’s Dress Shoes Woman’s Dress Woman’s Tailor-made Dress Woman’s Skirt Woman’s Slip/Petticoat Woman’s Tights Woman’s Everyday Leather Shoes Medical Aspirin Alka Seltzer Prescription (Tetracycline) Prescription (Insulin) Medical Doctor Dentist Hospital

  29. ORC Market Basket - Priced Items ORC International Compensation Services Recreation Portable TV Compact Disc Blank Video Tape Camera Film & Processing Tennis Balls Golf Balls Paperback Book Local Newspaper Weekly News Magazine Movies Sporting Event Admission Bicycle Food away from Home Restaurants Private Transport Oil Change Motor Tune-up Tyres Gasoline Insurance Public Transport Taxi Municipal Bus Municipal Train Commuter Train Commuter Bus Domestic Service

  30. ORC Expatriate Purchasing Pattern Surveys ORC International Compensation Services • Asks assignee for direct input • Records what items are purchased • Records quantity of purchases • Records where items are purchased (i.e., specific stores and locations) • Available on-line as well as hard copy

  31. Goods & Services Index Costs Abroad Costs in the Home Country ORC International Compensation Services = Index

  32. Producing an Index ORC International Compensation Services • Step 1 - Items and Weights • Step 2 - Prices • Step 3 - Price Ratios • Step 4 - Component Indexes • Step 5 - Final Index

  33. (B) US Price Index Component (E)x(A) (A) Weight ORC International Compensation Services Producing an Index (example) (C) Sing Price S$ (D) Sing Price US$ (E) Price Ratio (D)/(B) U.S. to Singapore FX:$1.898=US$1.00

  34. Computing Goods and Services Differentials ORC International Compensation Services Goods and Services Index -100 x Spendable = G&S Differential 100 Example Income £50,000 Family size 4 Spendable £25,095 Index 150 • Calculation 150-100 x £ = £12,548 100 • (Spendable + Differential) x Exchange Rate = Assignment Spendable Income

  35. ORC International Compensation Table

  36. ORC International Compensation Table

  37. ORC International Compensation Table

  38. ORC International Compensation Table

  39. ORC International Compensation Table

  40. ORC International Compensation Table

  41. Types of Indices ORC International Compensation Services • Expatriate • Assumes typical recently arrived expatriate purchasing pattern • Efficient Purchaser Index (EPI) • Assumes familiarity with local market • Modified (available with Expatriate or EPI indexes) • Adjusts index for categories that are company provided (e.g., transportation, medical care) • Short-Term Assignment Index • Apartment • Hotel • Composite

  42. Efficient Purchaser Indices (EPI) ORC International Compensation Services • Never a sacrifice of quality or change in expatriate’s basic spending pattern • “High cultural/economic affinity” with locals • Higher utilisation of local outlets and brands • Most likely in industrialised location where efficient purchasing is possible • Typically 10 to 20 percent below expatriate indices (exceptions: Tokyo and Eastern Europe) • Regular evaluations

  43. Similarities Expatriate Conducted every six months Two outlets per item Bargain or sale prices excluded Local market not priced Differences Expatriate Pricing carried out by expatriate pricing agent typical expatriate outlets international, well known brands selected home spending pattern retained Suitable for any host location EPI Conducted every six months Two outlets per item Bargain or sale prices excluded Local markets not priced EPI Pricing carried out by local national pricing agent local national outlets local brands of equivalent quality selected home spending pattern retained Suitable for host location economically or culturally similar to home country Comparison between Expatriate and EPI Indices ORC International Compensation Services

  44. Comparison between Expatriate and EPI Indices ORC International Compensation Services Based on a salary of £50,000 and a family size of 3

  45. Modified Indices ORC International Compensation Services Examples Include: • No private transportation • No domestic service adjustment • No public transportation • No medical care • Reduced private transportation • Reduced home furnishings Note: Any of the combination of above elements can be used in conjunction with either an Expatriate or EPI index

  46. Modified Indices ORC International Compensation Services Modification of an Index will affect the: • Spendable • Index • Differential

  47. Modification of Indices ORC International Compensation Services 100% Meat, Fish, Dairy Fruit and Vegetables Groceries Tobacco & Alcohol Personal Care Furnishings Clothing Medical Recreation Private Transportation Public Transportation Domestic Service Food Away Taxes Housing Reserve Goods and Services

  48. Modification of Indices ORC International Compensation Services 87% No Medical/ Private Transportation 100% - 13% = 87% = Factored Spendable Meat, Fish, Dairy Fruit and Vegetables Groceries Tobacco & Alcohol Personal Care Furnishings Clothing Medical Recreation Private Transportation Public Transportation Domestic Service Food Away Taxes Housing Reserve Goods and Services

  49. Index Options and Cost Comparisons ORC International Compensation Services London to Zurich Table: Index Home Spendable Expatriate Efficient Annual Net Country Factor Differential Purchaser Saving Spendable £ Differential £ £ £ Expatriate 130.6672 23,315 1.0000 7,150 -- 0 No Med RPT 129.1734 21,233 0.9107 6,194 -- 956 Red Furn RPT 130.4649 20,361 0.8733 6,203 -- 947 EPI 117.0037 23,315 1.0000 -- 3,964 3,186 EPI No Med RPT 115.1270 21,233 0.9107 -- 3,212 3,938 EPI Red Furn RPT 115.5878 20,361 0.8733 -- 3,174 3,445 Based on a salary of £50,000 and a family size of 3

  50. STAA Characteristics ORC International Compensation Services • One or two months to 11 months • Single status • Family at home • Apartment or hotel room • Between “business trip” and “expatriate assignment”

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