Modified Balance Sheet

Some organisations with assignees drawn from many nationalities wish to provide greater equity than a home-country balance sheet approach offers. Although the headquarters-based pay method may be helpful in these circumstances, it is usually expensive and breaks the employee's link to home salaries. An alternative that has some of the advantages of the headquarters approach—without as many of the drawbacks—is the modified balance sheet approach, which:

Maintains the expatriate in the home-country pay and benefits structure, but links spendable income to a single base-country expenditure pattern.
Provides all nationalities with the same host-country spendable income, which is usually the spendable income of the highest-paid nationality.
Provides host housing regardless of nationality (any housing deduction may or may not be related to the home country).
Preserves purchasing power at the same level for all expatriates, with nationality-based differences reflected in home-country base pay, tax equalisation, reserve, and incentives.

Advantages:

Maintains a partial home-country pay and benefits link.
Eases repatriation.
Provides some commonality of pay, regardless of home country.

Disadvantages:

Is potentially more costly than a home-country balance sheet approach.
Makes repatriation more difficult to low-salary countries.
Allows differences in total compensation, requiring special attention in explaining these facts to expatriates.
Requires a means of equating jobs between nationalities so that the single spendable income calculation can be made.

For more information, contact one of our worldwide offices or e-mail International Compensation Services.