After taxes, housing costs are typically the largest element of the cost of expatriate assignments. Establishing an appropriate housing budget for the expatriate and family to be able to rent suitable accommodation at the assignment location can however become a highly emotional issue if not properly managed.
One of the challenges in managing expatriate housing costs is the large number of individuals that can become involved in decision making. The different players can include global mobility managers, relocation firm employees, local management at the host location, and last but not least the expatriate’s spouse and children, all of whom can have different agendas. Unfortunately, expatriates very often have unrealistic housing expectations in terms of trying to duplicate their housing standard in the assignment location. For example, if they have a four bedroom home with an acre of land in their home country, they are not going to be able to find or possibly afford that type of housing in cities such as Hong Kong, Tokyo, as well as many other metropolitan areas. It is critical that company management and the relocation firms that they use emphasize in advance to expatriates and their families the need to be able to adapt to the type of homes or apartments likely to be available at the host location.
Establishing appropriate housing rental budgets for each assignment location in advance is definitely preferable to dealing with the all too common situations where expatriates and spouses are allowed to go house hunting with little or no supervision and find a potential dream house or apartment at an outrageous cost. As a result, management is forced to either to swallow the cost or deal with an already disgruntled expatriate and spouse. It is far preferable to invest the time in proactively researching rental costs for each location and establishing rental guidelines for different organization levels and family sizes. Company guidelines vary, but tiering allowances for 3 or 4 organization levels and 3 or 4 different family sizes are fairly typical. In addition to providing regularly updated expatriate housing data on assignment locations, consulting firms such as Mercer can develop customized housing allowance guidelines to support company budgets and employee demographics.
Availability of suitable rental properties for expatriates can fluctuate significantly in many locations, as well as costs, so it is critical that companies make sure that their housing guidelines are updated regularly. Even so, requests for exceptions will occur. Mercer’s International Assignment Policies Surveys regularly show that host housing allowances are the most frequent exception request that global mobility managers have to deal with. Our advice to clients is to institute a very clear approval process for dealing with exceptions. Experience from clients is also that the higher the level of management approval required, the less the number of requests to be allowed to rent the Taj Mahal!
Roger Herod, SPHR, is a Principal with Mercer, based in Chicago. He carries out a wide range of consulting projects for major multinational clients in the United States, Canada, and Europe, particularly focused on global compensation, benefits, and mobility issues. Roger Herod has served on the Board of Directors of SHRM’s Human Resources Certification Institute and has been extensively involved in the development of the GPHR certification program. He has spoken at a wide range of seminars and conferences. In addition to being the author of SHRM’s Global Human Resources Management Series, he is also the Editor of the International Human Resources Guide, and is the author of WorldatWork’s booklets on Compensating Globally Mobile Employees and Compensating North American Expatriates.
Roger Herod can be contacted at firstname.lastname@example.org