ACTUAL CASE HISTORY: Dennis was considered a rising star in the field of financial management software. At 39, he’d risen steadily over the years, and now worked for the third largest financial management software distributor in the U.S. As his company’s National Sales Manager, he had taken company sales higher and higher for four years straight. He’d also expanded sales into the area of financial management for non-profit organizations, a fast-growing niche. His future seemed very bright.
His company’s sales in Europe, though, had lagged repeatedly. Despite several changes in their European sales leadership, sales volume continued to disappoint. When the company’s CEO asked Dennis if he’d consider a two-year stay in Germany to rebuild the European software sales team from the ground up, Dennis was receptive. His wife was supportive, and since the kids were just 5 and 8, they seemed still young enough to be very adaptable. Dennis and his wife viewed the assignment as a great career opportunity, as well as a great family adventure. And that it was.
Four months later, Dennis, his wife and the kids had arrived in Dusseldorf, Germany, a charming yet vital city. They’d leased their home in Dallas for the two-years they were to be away. The kids were in an English-speaking school attended by other elementary-age sons and daughters of other expatriate parents. Their Dusseldorf house was leased for them, and even the household help were arranged by the company’s local representatives. Dennis planned to revamp the European sales team from the bottom up, one by one, with local salespeople to be identified by local executive recruiters. Initial hiring efforts were promising.
Then came the truly unexpected: seven months into the new assignment, with little warning of any kind, the company was sold to a French conglomerate, with their own ideas about European software sales, and their own Director of Sales, too. Dennis was notified that his services were no longer needed, but that he would be given a fair and reasonable severance package. Dennis inquired about arrangements for his family’s return to Dallas, including such things as return flights home, shipping the family’s belongings, and finding his family a home in the Dallas area. He was assured that all of his concerns would be addressed.
The rest was, as we say, “not nice.” Dennis was presented with a separation agreement that, he was told, had to be signed before he could find out what assistance he and his family would receive in returning home. When Dennis balked at signing it, his salary payments were halted. Then tuition payments stopped. Even their housekeeping services were withdrawn. The people who’d assured him he’d always be treated like “family” were, themselves now “divorced” from the company. HR representatives who he knew for years told him they were powerless to intervene. Dennis was now dealing with people at the new parent company he’d never worked with before. Unfortunately, he had nothing in writing that would give him a legal right to anything.
LESSON TO LEARN: An overseas, “expatriate” assignment can be a “feather in your cap,” a step in the path toward being assigned greater responsibilities. But going “expat” involves a multitude of risks, and unusual ones at that. If there’s ever a time to “fold your parachute first,” it’s before you “fly away” on an overseas assignment, taking your family, your household, and your career with you. While the vast number of expatriates who travel overseas come home with fair, reasonable and proper treatment, those who get into difficulties in this regard find themselves in some of the most difficult and harrowing circumstances you might imagine. Before you make the move to an overseas assignment, there are certain requests you must make, and certain written assurances you shouldn’t leave home without. Whether your company has a comprehensive expatriate program or none whatsoever, before agreeing to take the overseas assignment offered to you, consider our “Expatriate’s18 Mandatory Requests.”
WHAT YOU CAN DO: These are the items we suggest our clients raise, and hopefully resolve in a written agreement of some kind, before agreeing to take an overseas assignment.
A. Finance and Career-Related
- Salary Differential: You may find that, while your present salary suffices to provide you and your family with a comfortable lifestyle stateside, that same salary wouldn’t provide anywhere near that standard of living in, say, Singapore, Hong Kong or Tokyo. Your best bet is to speak with other American “expats” presently living in your country of assignment to get their view of the comparison, and necessary differential.
- Tax Equalization: How would you like to be hit with income tax bills based on your compensation from each of two different countries? That may happen unless someone with expert knowledge makes sure it doesn’t, and will be there in case it does. Most companies provide “tax equalization,” which means that they’ll make sure that your after-tax income – no matter what – is equal to what it would have been if you’d stayed stateside. These are very tricky calculations, made only by very few accountants with special knowledge and expertise in this field, who need to be familiar with the laws of many countries. Only three or so large firms do this kind of work. It’s doubtful your own personal accountant can help you here. Remember that for the calendar year 2006, for example, you may need this specialized assistance – at the company’s expense, hopefully – for a tax audit in 2010.
- Minimum Term and/or Notice: Knowing that you will be employed for at least a minimum period of time, and/or knowing that you will have at least a certain amount of notice before termination, are two important “risk-limiters” we always seek. Nowhere are they more important than in expatriate assignments. Whether it’s until the end of your children’s semester at private school, or the time you think it might take to find a new position – from 5,000 miles away – you should seek these.
- Currency Swing Risk: Do your remember the Russian bond default of 1998, or the Asian currency crisis of 1997? They each wreaked havoc in currency markets around the globe. If such things do happen again – and you can depend on that happening, sooner or later – who is more capable of absorbing the risk of your salary becoming insufficient to pay your bills in another country: your family or your employer? This substantial risk should be addressed before you venture overseas.
- A Job When You Return: This is one of the most difficult requests to make, and to get written assurances about, but nonetheless the largest risk you face in taking an overseas assignment. Once you’re “out of sight,” you tend to become “out of mind,” and at times available positions become few and far between. Will a position be found for you, no matter what? That’s the question.
B. Travel and Moving Related - Flights, etc.: Necessary flights you may need include (a) for initial house hunting, (b) your actual relocation, (c) flights home 2 or 3 times a year for holidays and the like, (d) flights home for family and medical emergencies, (d) flights home for reverse house hunting, and (e) for your return, preferably to the U.S. city of your choice (as your next job may be in a different city than you came from.) Your flight-rights will need to cover your immediate family, at the least. For those with kids in college, you may need to arrange special trips for them to come to visit you. Will you fly first class or red-eye in coach? Will you be provided tickets, or reimbursement one year later?
- Shipping and Storage of Household Goods: Beware of limits to be placed upon the extent of your moving household goods. Expect that you won’t be provided any assistance for storage, unless you ask. Consider seriously requesting either a greater allotment for shipping, an allotment for storage, or simply a budget for purchasing new household goods in your country of assignment.
- Home Sale Expense and Loss Protection: It is not unusual at all for an employer to cover the home-sale costs and potential losses an employee may suffer in taking an overseas assignment. These commonly include realtor fees, legal costs, and local transfer taxes. For senior executives, in particular, these may include the increased price of buying an equivalent home after repatriation.
- Emergency Leave Policy: Over the course of a year or two, you can expect emergencies of one type or another to arise that require that you travel to your home. These may include family illnesses, deaths of friends or loved ones, even lawsuits. Some companies cover the cost of travel in these circumstances, some subsidize such travel, and some don’t help at all. Don’t be shy about asking about your company’s policy, if any, and don’t be shy, again, if it is not to your liking.
C. Local Life and Housing Related - Housing Allowance: It’s uncommon for a temporarily-assigned executive to purchase a home during a relatively short-term assignment. Some companies own homes they provide to “expat” executives, but most expect their executives to find and rent their own housing. Especially for a family with children, this often proves prohibitive. In addition to outright salary differential, a specified housing allowance is preferable, and should be requested.
- Tuition Allowance: Those with school-age children need to make arrangements for local schooling. Most cities of significant size have English-speaking private schools for expatriate children. In smaller cities, private tutoring may be the only education alternative. Both of these alternatives will require sufficient tuition allowance.
- Local Club Memberships: In locales where the local culture is very different than your own, or security is a grave concern, it’s not uncommon to see social clubs set up for the international expatriate community. One good example is Saudi Arabia, where socializing in “public” is really not feasible. The social clubs are often quite expensive; their dues should either be paid for you, or at the least subsidized.
- Local Critical Care and Support: If a problem of a critical nature arises, will your company provide you with (a) local legal help, (b) local medical help, (c) emergency flight for distant medical help, (d) private security if appropriate, (e) evacuation in tense political, weather or earthquake situations? We often forget how fortunate we are in the U.S., and how those in other countries have daily concerns like these.
D. Legal and Technical Matters - Immigration Matters: When crossing borders, visas, work permits and the like can be maddening. In some countries, under certain visas you cannot remain in the country more than 24 hours after you’ve lost your job. Will the company provide you with immigration attorneys BOTH when you leave and when you come home? Will they reimburse you for your own immigration expense? Don’t ever expect sympathy or flexibility from border guards, or immigration officials.
- Identity of Employer: This issue usually surprises people, because it is just so unanticipated. Many companies operate overseas through local subsidiaries for tax, regulatory and legal reasons. To accomplish this, expatriated executives are sometimes “assigned” or “seconded” to the local subsidiary, who employs them. This can have profound consequences to the executive, including the loss of protection of U.S. laws, the cessation of stock and stock option vesting, and removal from the parent company’s other benefit plans (such as long term disability, pension, and bonus.)
- Continuing Obligations: In our efforts to limit risks, we request that the matters noted in this memo be raised with employers sending employees on overseas assignments. Certain of the obligations that we ask employers to assume are different than the others, in that they need to expressly continue past any possible employment termination. This is so because after employment ends, unless it is agreed otherwise, all obligations from employer to employee, and vice versa, cease; there’s no implied agreement to continue providing services or fulfilling obligations. As just two examples, (a) if your employment is terminated by your employer, will your employer pay for the accountants to prepare your “equalized” tax returns in the following year?, and (b) if your employment is terminated by your employer, will your employer pay for the costs of breaking a local apartment lease? The items in this list that, more than others, need to expressly survive employment termination are 2, 6, 7, 8, 10, 11, 12, 14, 15 and 17.
- Binding on Successors and Assigns: In most every commercial agreement, the parties provide that the obligations are binding on the parties’ successors and/or assigns. That means that, if a company buys your employer, or even its assets, then the purchasing company is responsible for the obligations of the purchased company. In these days of mergers and acquisitions, this is a very important risk limiter for expats.
- MUST be (a) In Writing and (b) Authorized: No matter what you may be told by HR, your supervisor or the company’s legal staff, verbal assurances on these matters are simply insufficient to protect you and your family. The same goes for “It’s company policy,” because “company policy” may change while you’re living in Bangladesh. If it’s clearly not a problem now, it needs to be clearly not a problem later, and the only way to make sure it’s clearly not a problem later is to have it in writing. Additionally, the person who signs any agreement to cover expatriate risks needs, too, to represent that he or she is authorized to do so. [As an aside, be extra careful if you’re not married, but in a domestic partnership; special wordings will need to be made in this event.]
There are many rewards to taking on, experiencing and fulfilling overseas assignments. But in every transaction, there’s something more than “rewards” that we need to focus on: “risks.” In our employment negotiations, a critical part of our efforts is always devoted to “risk limitation.” Those considering expatriate assignments must pay special attention to risk limitation, and this is how they need to do that.
These are not all of the risks faced by expatriate executives, but they are the primary ones that we’ve seen cause our clients the most serious problems. Every person, every assignment, every company and every transition has unique problems. You should try to customize your solutions to the particular concerns you have about your particular circumstances.
A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.