NAVIGATING THE GLOBAL COMPENSATION CHALLENGE FOR INTERNATIONAL MOVES

1. NAVIGATING THE GLOBAL COMPENSATION CHALLENGE FOR INTERNATIONAL MOVES Adele Yeargan, Head of Global Mobility, AIG Ed Hannibal, Global Practice Leader , Mercer

2. What We’ll Cover Today • Talent Supply and Demand • Basic Philosophy for Compensating International Assignments • Challenges in Compensating Assignees from Developing Markets (in this presentation, “DMs”) • Solutions • AIG; A Case Study • Managing Future Talent Compensation • Key Takeaways

3. TALENT SUPPLY AND DEMAND

4. Contradictions in Global TalentShortages and Surpluses Coexist • Reverse “brain drain”– top talent increasingly returning to emerging markets • Significant attrition at mid-career levels; employees move 2–3 times per yearto advance career • Labor laws and visas– complexity limits mobility and development • Only 25% of Indian and less than halfof Brazilian and Chinese professionals considered employable by global standards • 45 millionnew entrants in the global job market annually • 300 millionnew jobs needed between now and 2015 • By 2030, the US will need to add around 25 millionworkers, and Western Europe around 45 million • 214 millionmigrants worldwide; 40% move between developing countries

5. WEF Highlights of Talent Mobility Research Findings Definition must expand to fit the new age of talent mobility Talent Mobility: tal·ənt mō·bil·ətē The movement of workers between organizations or among locationsof an international organization

6. The New Definition of Mobility The Need for a New Global Mindset Careermobility Geographic mobility Position mobility People move based on their experience and jobs. People move where the jobs are. Positions move where the talent is.

7. Few foreign operations, not integrated • ‘Adolescence’ • Adventurous staff • Local plus packages • Equity & non-equity • Growing inter-national maturity • More HQ staff replaced by TCNs, local nationals • Home-based balance sheet • Career path focused • Less equity focus • Worldwide integration and planning • Global talent sourcing with less emphasis on nationality • Home-based balance sheet/globalist comp approach • Well-developed career planning, repatriation process Global Mobility Program Development Maturity Level on Mobility • First foreign operation • Local packages • Equity stake

8. Building an Integrated Approach to Talent Mobility StrategySuccessful Outcomes Through Clearly Linked Programs Audit Your Mobility Population!!!, HR service delivery, Outsourcing

9. BASIC PHILOSOPHY FOR COMPENSATING INTERNATIONAL ASSIGNMENTS

10. Context for Increasing Global AssignmentsGlobal Mobility Key Drivers Key drivers for international assignments: • Skills gaps in international locations • Management development • Technology transfer • Senior management role • Training Primary compensation design decision drivers: • Operational need • Cost • Motivation to accept assignment • Deploying key/core competitive resources • Administrative simplicity • Equitable treatment

11. Philosophy for Compensating Mobile EmployeesThe ‘Home Build Up’ or ‘Balance Sheet’ Approach

12. Context for Increasing Global AssignmentsWhy is it complex? • Gross and net compensationvaries between countries • Purchasing powervaries between countries • Exchange rateschange • Tax structures differ • Benefits and social security systems differ • International movesdisruptemployees lives • Somelocationsare unattractive • Language andculturediffer

13. tax $ Philosophy for these Alternative Mobile EmployeesPay Approaches Vary from Traditional International Assignments tax tax x x $ | Home salary balance sheet Inter-national scale Hybrid/ expat “light” Home salary Local salary Local plus HQ base Net salary Extended business trips Global nomads/career expats Localized expatriates HQ secondments Locally hired foreigners Short-term assignments “Prevailing wage” assignments Returnees Commuter assignments Permanent transfers Long-Term assignments

14. Context for Increasing Global AssignmentsWhere Expats Are Going (sorted by 2010 %) Source: Mercer’s/ORC’s Worldwide Survey of International Assignment Policies and Practices

15. Context for Increasing Global AssignmentsWhere Expats Are Going (sorted by 2010 %)

16. Philosophy for Compensatin Mobile EmployeesTransfers from Less-developed (developing) Countries • Home country pay structure • Moves from Developing Markets (DMs) to developed countries • Moves from one DM to another • Disparity of base paylevels between home and assignment location • Pay disparity does not equal cost-of-living disparity • Limitationsof conventional pay approaches • Repatriationto a developing country

17. Philosophy for Compensating Mobile EmployeesKey Questions • What are the job levelsof transferees? • What is the nature and length of assignments? • What is the economic level of the home country? • What is the economic level of the assignment country? • What are the cost differencesbetween the two countries? • What is the salary structureof the home country? • How well do host peers tolerate pay disparities? • Should a lower standard of livingcarry over on assignment? • Does a consistentcompensation approachfor all expatriates matter? • How many such transfersare you likely to have?

18. Philosophy for Compensating Expatriates from DMsElements of Compensation • Pay delivery practices: • Number of months’ pay • Variable pay • Other allowances • Statutory requirements: • Extra month’s bonus • Profit sharing • Vacation pay • Transportation allowances • Social security • Termination indemnities • Local executive perks & benefits: • Supplementary pension plans • Housing allowance/loans • Representation allowances • Dual employment contracts • Car and drivers • Executive perquisites

19. Total Cash Compensation Philosophy for Compensating Expatriates from DMsCompensation Levels Other Benefits & LT Incentives Short-Term Incentives Guaranteed Cash Guaranteed Cash Base Pay Base Pay Base Pay 19

20. Challenges in Compensation Assignees from DMsIncome Disparities Among Employee Levels Developing location Salary level Developed location Entry level Executive 20

21. Challenges in Compensating Assignees from DMsMarket Salaries/GM Salary as Multiple of Secretary

22. SOLUTIONS

23. SolutionsLocal Salary + Expatriate Allowances/Benefits

24. SolutionsDifferential + Position Allowance Host Country Peer Budget Position Allowance Equivalent Peer Spendable Income Differential Differential Home Budget Home Budget Host-Country Spendable Host-Country Peer Spendable

25. AIG TRANSFORMING TO FACILITATE (AND DRIVE) A MOBILE WORKFORCE STRATEGY

26. Establish an Operational Foundation: Global Compensation & Global Mobility

27. Create a Vision for Workforce Mobility

28. Build the Policy Format for all Mobility Programs

29. Create a Framework that Can Easily Flex – the Mobility Program should be as Dynamic as your Business Needs & be able to Manage Global Complexities from Compliance to Employee Profiles to Talent Development

30. MANAGING FUTURE TALENT COMPENSATION

31. Segmenting Assignees: Four-box ModelCurrent Assignees by Category (Median Values) DEVELOPMENTAL VALUE BUSINESS VALUE Source: Worldwide Policies and Practices Survey

32. Locations Talent Supply & Demand Quantity & Duration Purpose & Skill Requirements Lifecycle Management Segmentation Key Roles Performance Requirements Employee Value Proposition Leadership Capabilities Elements and Purpose Comparators & Positioning Performance and Risk Communication & Transparency Equity, Choice, Flexibility Governance & Accountability Affordability & Sustainability Administration Success Measures Oversight & Advisory Taking It to the Next Level Intra-company Collaboration – Mercer Point of View • Developing an integrated strategy for global talent mobility • Guiding principles shape strategy, design, and measurement PLANNING TALENT TOTAL REWARDS INVESTMENT

33. Case StudyFlex Policy Example Pre-Move On-Assignment Core benefit X Not applicable Discretionary benefit

34. Case StudyFlex Policy Example Core Optional

35. Key Takeways What We Covered Today Organizations will continue to source talent globally • Become part of the talentconversation • Ongoing need to validate mobility programphilosophy • Educate mobility staffon pay challenges from countries with disparate compensation levels • Establisha“Watch List” of problematic countries • Audit, evaluate, and evolve your Mobilitypolicies • ImplementMobility Workforce Planning programs

36. Daily living allowance for groceries, meals out, recreation, transportation, incidentals Normally one fixed per diem established per location, but practices vary Customize allowance per what is provided at assignment location Don’t hesitate to contact us! Per diems For example, does accommodation have cooking facilities? Is transportation provided? Ed Hannibal Chicago + 1 312 917 9297 ed.hannibal@mercer.com Adele Yeargan New York + 1 212 770 8254 Adele.yeargan@aig.com