GLOBALHR Executive Workshop Seattle, Washington March 2011 Patrick Riley Partner T A X.

GLOBALHR Executive Workshop

Seattle, WashingtonMarch 2011

Patrick Riley Partner

T A X

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in the U.S.A. 15352ANC

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Overview of today’s session

Localization: The big picture

What is localization? Why localize? Why is it a “hot topic” Issues to consider

Localization: The details

Provisions


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KPMG’s localization survey

Increased interest in localization prompted a “current issues” survey Survey launched on August 15, 2010 Survey is dynamic To date, 113 participants Survey closed as of November 15, 2010

Localization: The big picture


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What is localization?

“Textbook” definition

Localization is the process of transforming an expatriate remuneration package (including base salary, incentive compensation, risk benefits, perks, Social Security, and retirement plans) into one that is identical to that available to locally hired employees, with the understanding that the employee does not intend to return to his or her original country of employment.


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Terminology:Today’s focus = Localized employees

Localization is converting an expatriate to local status Local employee is a person working for an organization in his or her home country

- A person that chooses to live in a country other than his/her country of citizenship or nationality can be a direct hire and, thus, a local employee

Employees can also move indefinitely or transfer as a local to a new country This session specifically addresses employees that were on an expatriate assignment who

are localized


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Why localize?

Original assignment length has ended and…

Employee would like to remain in the host country No local candidate available for the position Employer would like to eliminate assignment allowances and benefits (cost reduction)



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What are the primary reasons for localizing an assignee (select all that apply)?

50%

81%

60%

38%

17%

25%

29%

Assignment has ended and the company wants to eliminate assignment costs

Long-term assignee’s intent to return to the home country has changed; he or she would

like to remain in the host country location

Business case/need identif ied

Budgets, costs, or other f inancial drivers

Long-term presence is needed to forge cultural ties for business relationships

Equitable and fair in comparison to the host country peers

Reduces special deals and exceptions

Assignment has ended and the company wants to eliminate assignment costs

Long-term assignee’s intent to return to the home country has changed; he or she would

like to remain in the host country location

Business case/need identified

Budgets, costs, or other financial drivers

Long-term presence is needed to forge cultural ties for business relationships

Equitable and fair in comparison to the host country peers

Reduces special deals and exceptions


Localization = “Hot topic”

Localization has always been a popular topic because: There’s a perception that it is a cheaper alternative than a full expatriate package It is an easy way to reduce the expatriate population It is a leading practice when done properly after a prescribed assignment length

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Localization = “Hot topic” (continued)

Localization was a popular concept, but very rarely implemented Localizing long-term expatriates was often overlooked when economic times were good Current economic climate brought scrutiny to program costs and localizing became a reality


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Does your organization currently have formal localization policies/procedures/guidelines in place?

Yes49%

No51%


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KPMG’s Localization Survey (continued)

If you answered “No,” does your organization have plans to put formal localization policies/procedures/guidelines in place?

43%

20%

6%

31%

Yes, within the next 12 months

Yes, within the next 2 years

Yes, within the next 3 – 5 years

No, our organization does not have plans to put a formal localization policy/procedure/guidelines

in place



Yes, within the next 3–5 years

No, our organization does not have plans to put a formal localization

policy/procedure/guidelines in place



Yes, within the next 3–5 years

No, our organization dose not have plans to put a formal localization policy/procedure/guidelines in place


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Localization: Policies and procedures

Many organizations consider to develop a localization policy Localization policies should be flexible to accommodate the needs of the employee/employer

and home/host country combinations


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Localization issues – High level

Determine eligibility of employee and location Address legal issues at home and host

- Review contracts, collective agreements, qualified plan rules, severance requirements

- Visa and immigration issues Establish local remuneration package; conduct cost comparisons

- Focus on LOCAL market compensation levels, including retirement

- Account of “special” benefits (e.g., schooling, tax assistance)


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Localization issues – High level (continued)

Review and document personal financial implications for employee

- Near-term: taxability of country-of-origin assets

- Long-term: retirement plans, Social Security, FX risks

- Risks of reversal Confirm and document permanence of arrangement

- Employee and employer document understanding of arrangement

- Acknowledge tax impact and filing obligations

- Acknowledge impact of green card

Localization: The details


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Localization policies and procedures

Localization practices vary. Some organizations:

Remove all the assignment benefits Phase out assignment benefits Remove some assignment benefits Provide a buyout payment


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Which of the following statements best describe your company’s approach to localized assignees? (Select all that apply)

42%

30%

44%

67%65%

All assignment-related benef its are removed

Some assignment-related benef its are retained

Assignment-related benef its are gradually phased out

Base salary is changed to ref lect the compensation

system of the host country

Retirement/pension plan participation is changed f rom

the home country plans to those of the host country


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KPMG’s localization survey (continued)

When moving from a country with a high cost of living to a country with a low cost of living, which of the following best describes how your company handles localizations?

6%

5%

58%

16%

15%

Pay a bonus to “make them whole” for a number of years

Retain the COLA for a number of years

Pay local salary with no COLA (do not address)

Continue to pay home-based salary

Other

Pay a bonus to “make them whole” for a number of years

Retain the COLA for a number of years

Pay local salary with no COLA (do not address)

Continue to pay home-based salary

Other


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Localization policies and procedures

Assignees will have questions about transitioning to local employment conditions Assignees with families will have additional questions

- Examples: Schooling Spousal assistance


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Yes35%

No65%


Are leave entitlements rolled over to the host country organization?


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Yes52%

No48%


Does the home country organization pay the assignee’s leave entitlements prior to the assignee localizing in the new country?


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How does your company address long-term benefits with respect to localizations (e.g., retirement, pension, etc.)?

3%

2%

4%

5%

2%

36%

35%

13%

Provide a lump sum payment in lieu of long-term …

Provide the benefit via an offshore company plan

Provide an ongoing “benefit” allowance

Company retains the assignee on home …

Totalized annuity payment is provided

Only host benefits are provided

On a case-by-case basis

Other

Provide a lump sum payment in lieu of long-term benefits

Provide the benefit via an offshore company plan

Provide an ongoing “benefit” allowance

Company retains the assignee on home benefits plans and pays all costs

Totalized annuity payment is provided

Only host benefits are provided


Other


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Does your organization provide any of the following types of assistance to the accompanying spouse/partner of the localizing assignee? (Select all that apply)

12%

4%

22%

12%

3%

1%

67%

An allowance or payment for designated expenses

An allowance or payment for any expense

Job search assistance in host country

Reimbursement of education expenses

Partial financial compensation for lost salary

Full financial compensation for lost salary

No assistance provided


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KPMG’s Localization Survey (continued)

Please select the statement below that best describes how education (of the assignee’s children) is treated as part of the localization process.

50%

5%

2%

2%

41%

It is eliminated or phased out like any other assignment-related benefit

The organization does not disrupt the children’s education and will continue to pay all costs under the

expatriate policy

Children’s education costs are factored into the lump sum payout

The organization will allow the assignee’s children to maintain the organization’s debenture, but the assignee

must pay the yearly tuition


It is eliminated or phased out like any other assignment-related benefit

The organization does not disrupt children’s education and will continue to pay all costs under the expatriate act

Children’s education costs are factored into the lump sum payout

The organization will allow the assignee’s children to maintain the organization’s debenture, but the assignee

must pay the yearly tuition



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Summary

Localization does not always result in cost savings Expatriate allowances are only part of a total remuneration package Understand intent Business leaders to be educated regarding the total bottom-line impact

Contact us

Pat RileyKPMG [email protected]

www.kpmg.com

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. 15352ANC

The KPMG name, logo and “cutting through complexity” are registeredtrademarks or trademarks of KPMG International.

GLOBALHR Executive Workshop Seattle, Washington March 2011 Patrick Riley Partner T A X.

Documents

Transcript of GLOBALHR Executive Workshop Seattle, Washington March 2011 Patrick Riley Partner T A X.