ORC International Compensation Services

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ORC International Compensation
Services Presentation to West Thames Exchange
Club Meeting 10 January, 2001 Siobhan
Cummins Ann McLaughlin
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About Organization Resources Counselors, Inc.
(ORC)
ORC International Compensation Services

• ORC is a human resources management consulting
  firm
• ORC works with private sector, public sector and
  non-profit organisations throughout the world
• The roots of ORC go back to 1922, when John D.
  Rockefeller, Jr. established a staff qualified to
  give advice in the field of industrial relations

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ORCs Global Presence
ORC International Compensation Services

• New York Chicago Los Angeles
• London Dallas Sacramento
  
• Munich San Francisco Washington, D.C.
• Paris
• Singapore Representative Offices
• Tokyo
• Osaka Argentina
• Melbourne Chile
• Venezuela
• (Approximately 250 staff)

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ORC Provides
ORC International Compensation Services

• Consulting Services
• Networks, Forums, and Meeting Groups
• Information Services

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ORC's Areas of Specialisation
ORC International Compensation Services

• Compensation
• International
• Expatriate
• Local
• Salary Surveys
• General Human Resources
• Training, Development and Strategic HR Planning
• Organisational Development
• Succession Planning

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ORC's Areas of Specialisation (cont.)
ORC International Compensation Services

• Employee Relations
• International
• Domestic
• International Social Policy
• Equal Employment Opportunity
• Occupational Safety Health

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ORC International Compensation Services

• International Compensation
• Reviews of international assignment policies and
  practices
• Design of policies for international assignees
• Seminars for international HR specialists
• International compensation roundtables
• Surveys
• Local national employee relations and
  compensation data
• Data services

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International Compensation Data
ORC International Compensation Services
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ORC International Compensation Services
ORC International Compensation Data
Home Country Purchasing Power
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Balance Sheet Methodology Key Objectives

• Expatriates kept on the home pay system
• Allowances and differentials used to maintain
  home equity, based on logical and defensible
  criteria
• goods and service
• housing
• income tax
• Neither gain nor lose
• Encourages mobility
• Administratively simple
• Incentives are typically paid
• premia
• hardship
• other allowances

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Compensation Policy - Common Practice
European
North American
Source ORC PPS 2000
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Alternative Policy Options Balance Sheet

• Advantages
• All assignees from same country treated
  consistently regardless of location
• Promotes maximum mobility between locations
• Consistent relationship between assignees
  compensation home colleagues maintained
• Assignees maintain home country standard of
  living
• Suits assignments of up to five years
• Facilitates repatriation/reassignment

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Alternative Policy Options Balance Sheet

• Disadvantages
• Cannot achieve consistent compensation levels
  amongst assignees of different nationalities
• Compensation levels for assignees usually
  inconsistent with local levels
• For longer term assignments, level nature of
  compensation assignment allowances
  inappropriate
• Administration

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Goods and Services
ORC International Compensation Services
Host- Location Spendable
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ORC International Compensation Services
Definition of Goods and Services Terminology

• Home country goods and services Spendable Income
• - The typical amount of money spent on goods and
  services in
• the home country - varies by income and
  family size.
• Goods and Services Index
• - The ratio of the costs of goods and services
  in the assignment
• location to similar costs in the home
  country.
• Goods and Services Differential
• - The additional payment made to an expatriate
  to account for
• the average cost difference between the
  assignment location
• and the home country
• Assignment location Goods and Services Spendable
• - The amount needed at the assignment location
  for goods and
• services - the home spendable plus
  differential

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ORC International Compensation Services
ORC Home Country Spendable Income
Data Sources/Assumptions

• Home Country Spendable Income
• The amount that a typical individual or family
  spends on
• goods and services at home.
• It varies by income level and family size
• Data Sources
• Government statistical information
• Family expenditure surveys
• -Office for National Statistics, Family
  Expenditure Survey
• -Institute. National de Statistique, Enquete
  sur les Budget des Manages
• -INSEE, Les Budgets des Menages
• Logarithmic regression
• Updates
• Alternative options

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ORC International Compensation Services
Spendable as a Function of Family Size
Annual Spendable Income
Annual Base Salary
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ORC International Compensation Services
Spendable as a Function of Income
Note Spendable rises absolutely with income, but
declines as a percentage as income rises
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ORC International Compensation Services
Goods and Services - Weightings UK
Note Data source ORC National Expenditure
Profile, April 2000. A category weight is the
percentage of spendable income expended on that
category, reflecting its relative importance in
the market basket.
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ORC International Compensation Services
Swiss Spendable Income
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ORC International Compensation Services
Comparison of Weights
Category UK USA Netherlands
Spain Food at home meat, fish, dairy
8.1 5.2 8.6
19.4 groceries 6.1 6.0
7.2 6.7 fruit vegetables
3.7 2.6 3.0
6.1 Tobacco Alcohol 7.9 2.7
3.8 3.0 Personal Care 3.5
4.0 3.9 3.8 Furnishings
household 15.7 16.4 15.5
7.7 Clothing 9.0 11.1 12.1
13.7 Medical Care 1.6 4.7
2.5 3.2 Recreation 20.1 12.9
22.7 9.5 Transportation priva
te 11.8 15.7 11.1
9.5 public 2.9 3.2 1.2
1.6 Domestic service 1.2
3.0 2.4 1.1 Food Away from
Home 8.4 12.5 6.0
14.7 Total 100.0 100.0 100.0
100.0
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Make-Up of CategoriesU.S. Item Weightings
ORC International Compensation Services
Weight
Category Fruits Vegetables
A weighting (or weight) is the percentage of
income spent on an item and reflects its relative
importance within its category
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Market Basket
ORC International Compensation Services

• Measures costs of goods services in the home
  country and the marketplace of the host city
• 175 items
• Selection criteria
• Representative
• Availability
• Usefulness for expatriates
• Prices collected in two retail outlets
• Multiple brands priced

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Pricing Surveys
ORC International Compensation Services

• Conducted every six months in most locations
  (more often in some, annually in others)
• Sales prices not included in survey
• Local markets typically not priced
• VAT and sales taxes always included
• Outlets selected by coordinator and agent using
  data from ORC surveys of expatriate purchasing
  patterns
• Conducted from the international assignee's point
  of view
• Recently arrived (less than one year)
• Does not speak local language

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ORC Pricing Agents
ORC International Compensation Services

• Expatriate living in the priced location
• Objective not employed by or associated with ORC
  client companies
• Recruited and trained by ORC co-ordinators
• Regular communication with ORC co-ordinators and
  NY Production Centre

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ORC Market Basket - Priced Items
ORC International Compensation Services
Biscuits Preserves Canned Soup Rice Flour
Cracker Soy Sauce Carbonated Soft Drink Bottled
Mineral Water canned Vegetables Canned
Fruit Canned/Carton Juice Fresh Citrus
Fruit Other Fresh Fruit Fresh Vegetables Potatoes
Bean Curd Dried Laver
Food at Home
Dried Milk Cheese Vegetable/Cooking
Oil Bread Sugar Flour Table Salt Rice Macaroni/Spa
ghetti Dried Beans Breakfast Cereal Coffee Tea
Bags Baby Food Chocolate Bar
Beef and Veal Pork Lamb Chicken Bacon Knockwurst/
Frankfurters Fish Shellfish Salted Salmon Canned
Tuna Eggs Butter Frozen Vegetables Margarine Fresh
Milk
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ORC Market Basket - Priced Items
ORC International Compensation Services
Tobacco/Alcohol
Cigarettes Whiskey Beer Wine Sake
Furnishings Household Operations Scouring
Powder Toilet Tissue Light Bulb Insecticide To
aster Electric Iron Washing Machine Vacuum
Cleaner Sheet Bath Towel Saucepan Private
Residential Telephone
Personal Care
Laundry, Mans Business Shirt Dry Cleaning,
Mans Suit Mans Haircut Womans Shampoo,
Cut/Blow-dry Sanitary Napkin Toothpaste Razor
Blades Deodorant Bath/Toilet Soap Laundry
Detergent
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ORC Market Basket - Priced Items
ORC International Compensation Services
Clothing Mans Business Slacks/Trousers Mans
Two-piece Suit Mans Tailor Made Two-piece
Suit Mans Business Shirt Mans
Undershirt Childs Jeans Boys Dress
Shoes Womans Dress Womans Tailor-made
Dress Womans Skirt Womans Slip/Petticoat Woma
ns Tights Womans Everyday Leather Shoes
Medical Aspirin Alka Seltzer Prescription
(Tetracycline) Prescription (Insulin) Medical
Doctor Dentist Hospital
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ORC Market Basket - Priced Items
ORC International Compensation Services
Recreation Portable TV Compact Disc Blank
Video Tape Camera Film Processing Tennis
Balls Golf Balls Paperback Book Local
Newspaper Weekly News Magazine Movies Sporting
Event Admission Bicycle Food away from
Home Restaurants
Private Transport Oil Change Motor
Tune-up Tyres Gasoline Insurance Public
Transport Taxi Municipal Bus Municipal
Train Commuter Train Commuter Bus Domestic
Service
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ORC Expatriate Purchasing Pattern Surveys
ORC International Compensation Services

• Asks assignee for direct input
• Records what items are purchased
• Records quantity of purchases
• Records where items are purchased (i.e.,
  specific stores and locations)
• Available on-line as well as hard copy

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Goods Services Index
ORC International Compensation Services

• Costs Abroad
• Costs in the Home Country

Index
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Producing an Index
ORC International Compensation Services

• Step 1 - Items and Weights
• Step 2 - Prices
• Step 3 - Price Ratios
• Step 4 - Component Indexes
• Step 5 - Final Index

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ORC International Compensation Services
Producing an Index (example)
(C) Sing Price S
(D) Sing Price US
(E) Price Ratio (D)/(B)
U.S. to Singapore FX1.898US1.00
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Computing Goods and Services Differentials
ORC International Compensation Services

• Goods and Services Index -100 x Spendable GS
  Differential
• 100
• Example
• Income 50,000
• Family size 4
• Spendable 25,095
• Index 150
• Calculation
• 150-100 x 12,548
• 100
• (Spendable Differential) x Exchange Rate
• Assignment Spendable Income

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ORC International Compensation Table
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ORC International Compensation Table
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ORC International Compensation Table
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ORC International Compensation Table
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ORC International Compensation Table
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ORC International Compensation Table
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Types of Indices
ORC International Compensation Services

• Expatriate
• Assumes typical recently arrived expatriate
  purchasing pattern
• Efficient Purchaser Index (EPI)
• Assumes familiarity with local market
• Modified (available with Expatriate or EPI
  indexes)
• Adjusts index for categories that are company
  provided (e.g., transportation, medical care)
• Short-Term Assignment Index
• Apartment
• Hotel
• Composite

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Efficient Purchaser Indices (EPI)
ORC International Compensation Services

• Never a sacrifice of quality or change in
  expatriates basic spending pattern
• High cultural/economic affinity with locals
• Higher utilisation of local outlets and brands
• Most likely in industrialised location where
  efficient purchasing is possible
• Typically 10 to 20 percent below expatriate
  indices (exceptions Tokyo and Eastern Europe)
• Regular evaluations

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Comparison between Expatriate and EPI Indices
ORC International Compensation Services

• Similarities
• Expatriate
• Conducted every six months
• Two outlets per item
• Bargain or sale prices excluded
• Local market not priced
• Differences
• Expatriate
• Pricing carried out by expatriate pricing agent
• typical expatriate outlets
• international, well known brands selected
• home spending pattern retained
• Suitable for any host location

• EPI
• Conducted every six months
• Two outlets per item
• Bargain or sale prices excluded
• Local markets not priced
• EPI
• Pricing carried out by local national pricing
  agent
• local national outlets
• local brands of equivalent quality selected
• home spending pattern retained
• Suitable for host location economically or
  culturally similar to home country

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Comparison between Expatriate and EPI Indices
ORC International Compensation Services
Based on a salary of 50,000 and a family size of
3
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Modified Indices
ORC International Compensation Services

• Examples Include
• No private transportation
• No domestic service adjustment
• No public transportation
• No medical care
• Reduced private transportation
• Reduced home furnishings
• Note Any of the combination of above elements
  can be used in conjunction with either an
  Expatriate or EPI index

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Modified Indices
ORC International Compensation Services

• Modification of an Index will affect the
• Spendable
• Index
• Differential

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Modification of Indices
ORC International Compensation Services
100
Meat, Fish, Dairy Fruit and Vegetables Groceries T
obacco Alcohol Personal Care Furnishings Clothin
g Medical Recreation Private Transportation Public
Transportation Domestic Service Food Away
Taxes Housing Reserve
Goods and Services
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Modification of Indices
ORC International Compensation Services
87
No Medical/ Private Transportation 100 - 13
87 Factored Spendable
Meat, Fish, Dairy Fruit and Vegetables Groceries T
obacco Alcohol Personal Care Furnishings Clothin
g Medical Recreation Private Transportation Public
Transportation Domestic Service Food Away
Taxes Housing Reserve
Goods and Services
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Index Options and Cost Comparisons
ORC International Compensation Services
London to Zurich
Table Index Home
Spendable Expatriate Efficient Annual
Net Country Factor Differential Purchaser
Saving Spendable Differential
Expatriate
130.6672 23,315 1.0000 7,150 --
0 No Med RPT 129.1734 21,233
0.9107 6,194 -- 956 Red Furn RPT
130.4649 20,361 0.8733 6,203 --
947 EPI 117.0037 23,315 1.0000
-- 3,964 3,186 EPI No Med RPT
115.1270 21,233 0.9107 -- 3,212 3,938 EPI
Red Furn RPT 115.5878 20,361 0.8733
-- 3,174 3,445
Based on a salary of 50,000 and a family size of
3
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STAA Characteristics
ORC International Compensation Services

• One or two months to 11 months
• Single status
• Family at home
• Apartment or hotel room
• Between business trip and expatriate
  assignment

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Short Term Assignment Allowance - Apartment
ORC International Compensation Services

• Included
• Reduced food at home consumption (60 of home
  use)
• Tobacco and alcohol
• Personal care
• Recreation admissions and reading materials
• Public transportation
• Increased food away (double home use)
• Excluded
• Furnishings and household operations
• Clothing
• Medical care
• Recreation durables
• Private transportation
• Domestic service

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Short Term Assignment Allowance - Hotel
ORC International Compensation Services

• Included
• Minimal food at home (e.g. snacks)
• Tobacco and alcohol
• Personal care
• Recreation admissions and reading materials
• Public transportation
• All meals out
• Excluded
• Furnishings and household operations
• Clothing
• Medical care
• Recreation durables
• Private transportation
• Domestic service

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Composite Indices
ORC International Compensation Services

• Appropriate for certain locations
• Angola
• Vietnam
• Expatriate purchases in multiple markets
• Luanda and Hong Kong
• Ho Chi Minh City and Bangkok

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Non-traditional Data Options
ORC International Compensation Services

• International indices
• Euro Indices
• Blended weights
• Off-matrix data
• Exclusion of domestic service
• Customisations

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Updates of Indices
ORC International Compensation Services

• At a minimum four times a year
• Twice a year for pricing and currency
• Twice a year for currency only
• Updated if exchange rate fluctuates 3 for four
  consecutive weeks
• Updated if exchange rate changes 6 for two
  consecutive weeks
• Ad hoc updates when currency devaluations or
  rapid inflation occurs

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International Compensation Data Formats
ORC International Compensation Services

• Assignment Location Tables
• International Compensation Capsules (ICAP)
• Assignment Location Disk
• E-Mail - PDF/EXCEL
• On-line Access
• Customised format ie. PWC Resource

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ORC Housing Data
ORC International Compensation Services

• Home-country housing norms
• Assignment-location housing costs
• Typical expatriate housing costs report
• Monthly housing guidelines report

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ORC Home Housing Norms
ORC International Compensation Services

• The amount that a typical individual or family
  pays for housing and utilities at home
• It varies by
• Salary level
• Family size (to a limited degree)
• Norm is updated annually
• Data obtained through government statistics
• Data include consumption elements of housing (not
  investment) rent or mortgage interest, property
  taxes, property insurance, utilities (not
  telephone), and repairs and maintenance
• Utilities breakout is available

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ORC International Compensation Table
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ORC International Compensation Table
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ORC International Compensation Table
Customised Housing Data

• Peer housing
• Set level according to grade/position
• Customised housing studies

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ORC International Compensation Services
Other Data Services
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International Compensation Services

• Per Diems
• Compensation Calculations
• balance sheets
• net to nets
• net to gross
• Location Evaluation Reports/Hardship Data
• Country Reports
• IERS
• Local national Compensation Data
• Surveys
• Worldwide PPS
• Short Term Assignments