CASE STUDY

Background of the company

Guyana-Trinidad Aluminum manufactures and sells aluminum ingots. The CEO has asked you to look at their expatriate pay system. The company is headquartered in La Brea, Trinidad & Tobago, with branch offices in Canada, Guyana, Jamaica and the USA. Some of these offices are staffed by a number of T&T citizens, called expatriates, who work in these foreign locations, usually on a temporary basis. The rest of the office is staffed by local country nationals (LCNs), who are citizens of the country in which the office is located.

By an examination of internal GTAL memos and discussions with their HR department, you learned that last week, one of the T&T expatriates, a strength of materials engineer, quit in Guyana. This made three voluntary quits in six months for the Guyana office. All three expatriates cited low pay among the reasons for their departure.

GTAL Inter-Office Memorandum

Here is the summary you requested of the features we presently offer to employees working in our overseas offices. Most of the policy was updated two years ago. We follow a balance sheet approach with the following additional elements:

A pre-move visit to the foreign location for the employee and his/her spouse.

Pre-move cultural and language training for employees and their families.

Provision of a company-paid car in the foreign location for the duration of the employees stay.

Shipping and/or storage costs for the employees belongings.

Emergency travel arrangements in case of death or illness of a family member back in T&T.

The following is compensation information you requested about our expatriate engineers in Guyana. Please note that when this plan was implemented, the T&T dollar was worth 30 Guyanese dollars.

Guyanese Dollars T&T Dollars

Base salary $2,340,000 $78,000

Profit sharing 60,000 2,000

Foreign Service premium 150,000 5,000

Tax equalization 123,000 4,100

Housing allowance 150,000 7,000

Subtotal 2,883,000 96,100

Benefits 780,000 26,000

Total $3,663,000 $122,100

From: Professional Placements

To: Guyana-Trinidad Aluminum

Here is the information you requested on the different types of expatriate plans.

Balance Sheet Approach

This is by far the most common method used to pay expatriates. It attempts to enable the expatriate to maintain a standard of living roughly equivalent to the standard of living prior to taking the assignment. Expenses are broken down into four major categories: Income taxes, housing, goods and services, and reserve (or as discretionary accounts, e.g., savings, investments, etc.). Each component is measured in home country currency and varies with level and family size. Costs of comparable income taxes, housing, and goods and services are then measured in the host country, and the expatriate is equalized to the base country for each component.

Here is an example based upon the information you sent me regarding the Guyana location.

T&T Guyanese Allowance

Expenditures Equivalent in T&T Dollars

Taxes $17,000 $20,000 $3,000

Housing 13,000 21,000 8,000

Goods and Services 34,000 40,000 6,000

Discretionary account 24,000 24,000 ------

Total $88,000 $105,000 $17,000

Notice that total T&T expenditures were $88,000, about equivalent to the employees salary (excluding benefits). The company pays the expatriate the amounts in Allowance (the third column) plus usual salary (column 1). Therefore, the expatriate will be paid $105,000. However, the purchasing power of the expatriate will be about the same as it was back in T&T at a salary of $88,000. The intent is that financially, the expat will neither gain nor lose.

The balance sheet has been criticized as too complex and too expensive: the expat ends up spending the extra allowance. An alternative is simply to lump the allowance into base and incentives.

GTAL Inter-Office Memorandum

To: C. Me

From: Seedy Rom, Project Engineer

Re: Expatriate Pay

I was an expatriate on assignment in Guyana only four months ago. However, I could not stand to live there any longer. So I requested a transfer back to Trinidad. I have a wife and two small children, and could no longer expect them to face the poor living standards and working conditions in Guyana. As my records should show, my performance ratings have been consistently superior and my supervisors reported that I was due for a promotion in 3 months. My decision to leave is based on my pay. I recognise that my pay package appears very large compared to the one I had in Trinidad. Yet it was very expensive to support my family and myself here in Guyana. I wanted to be able to provide my family with everything they had in Trinidad. I should be able to do that. My family should not suffer just because I accepted an assignment in Guyana.

I was also made to feel very uncomfortable at work. Most of the other workers there were Guyanese. While they didnt really know the amount I was making, I always felt they had a good idea. They made considerably less than I did, even though they were doing the same job I was. I felt they resented me, primarily because of the differences in compensation. This made it difficult to work with them. Finally, it was not very clear what my role would be when I returned to Trinidad. I may not have my old job waiting for me when I return. Just for your information, here are some comparative prices. Note the size of the allowance required to offset the differences in costs.

Tuition at a private school comparable to home country education

Guyana $300.000 (Guyanese Dollars) $(TT)10,000 per year

Trinidad $(TT)7,000 per year

Required allowance: $(TT)3,000

3-Bedroom 2-bath duplex with community pool and tennis facilities

Guyana $5, 100.000 (Guyanese Dollars) $(TT)170,000

Trinidad $(TT)160,000

Required allowance: $(TT)10,000

2,000 sq. ft. single dwelling home with full yard

Guyana $15,000.000 (Guyanese Dollars) $(TT)300,000

Trinidad $(TT)260,000

Required allowance: $(TT)40,000

These data make my point about GTALs low expatriate allowances. My current salary is $80,000 (including my $2,000 profit sharing bonus). My housing allowance is only $7,000 and the foreign service premium is only $5,000. Just my childrens schooling and my housing exceed this $12,000 by $1,000.

A comparison.

Actual Cost GTALs Allowance

Childrens Schooling $ 3,000 $5,000 (total FS Premium)

Housing in duplex 10,000 7,000

$13,000 $12,000

Kindly assist in answering these two question on the case study

Questions 1.

Prepare a memo that includes the following:

a. Your preliminary evaluation and analysis of expatriate pay at GTAL. Critical problems to address in GTALs expat pay plan include: Should GTAL provide some hardship premium for all assignments? Should GTAL match its competitors policies? What is the primary objective of the GTAL expat plan: Motivate volunteers for foreign assignments? Make foreign assignments a great deal? Encourage a small contingent of employees to become permanent foreign workers?

b. Your recommendations. For example, would you recommend increasing the emphasis on base pay, short-term or long-term incentives? What is your rationale?

SECTION 2

1. You are hired as the HR Consultant to develop a benefits programme for a medium sized company in the Caribbean. The Companys main business is IT consulting and they provide remote and direct support to their clients in the region. The staff are required to be on call in the event that there is any malfunction of IT equipment. Prepare a concept paper with the following considerations to the Board of Directors. a. What are the main components of the benefit programme and why a benefits programme is necessary at this stage in the life of the business?

b. Outline how the benefit programme should be implemented and who should be involved in the design and implementation of the programme.