Net-to-net Approach

This approach is best used for integrating assignees into local pay programs when the relocation is permanent or for an indefinite period. Base pay is typically reduced by a hypothetical home-country tax, with the "net" salary paid to the expatriate. Due to the often-significant differences in tax rates, social security contributions, housing costs, and general cost of living between cities, a simple conversion of salary would be meaningless. Therefore, home-country net pay is adjusted for any cost-of-living difference, then grossed up for local/state taxes and housing costs.

Companies generally develop the following two alternative packages, and pay the higher amount:

A competitive local salary within the host structure, factoring in job experience, work skills, and peer salaries
A salary package that includes adjustments for differences in taxes, housing, and cost of living between home and host

Advantages: