Reduce Costs with a Better Policy Exceptions System

David Remedios - Sep 26 2018
Published in: Ask the Experts

This article originally appeared in the September 2018 edition of Mobility Magazine.

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Exceptions are unexpected allowances and benefits provided to an international assignee that are outside of the scope of an international assignment policy. Often managers sign off on exceptions, looking only at the direct cost and not realizing there can be large associated tax costs.

Besides cost issues, policy exceptions can create compliance risks, policy implications, and a lot of administration to track the exceptions, all of which could lead to significant budget overspend.

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One of the first steps in planning a successful international assignment is to establish a budget. It is rare that companies will not need to make exceptions to policy from time to time to accommodate the varied needs of individual assignees. Hence, most companies set aside a contingency budget to cover unexpected costs relating to an assignment. Most companies use a rate of 5 to 10 percent from the total budget to determine contingency.

Policy exceptions tend to fall into three categories:

  1. Many “under-the-radar” policy exceptions tend to occur during the initial salary package negotiations between a line manager and an employee. These negotiations may tend to go unreported, as they are not tracked by the international mobility team, even though these types of costs are a common cause of budget creep.
  2. Exception requests commonly arise prior to a relocation—typically after an employee’s look-see visit to the assignment location. Accommodating an employee’s request for an extra guest room may seem reasonable, but what might seem like a small exception to an assignment policy can result in a big cost to the company. Assignees are well-known for comparing packages, and if an exception is made for one, it often becomes typical practice, as subsequent assignees expect similar provision to be made for them.
  3. Genuine exceptions may arise beyond the control of the assignee or the company, such as extended stays in temporary accommodation due to shipping delays in household goods or extra education costs due to the limited availability of schooling choices.

Process for Authorizing Exceptions

To keep costs down, a company will need to implement a well-defined process for managing and authorizing policy exceptions to realize cost savings in program administration.

  1. Once the business case for an assignment has been approved, the company should run a cost projection. Cost projections can increase awareness of the full cost of an exception by comparing budgeted costs versus unbudgeted costs incurred. They can also help to identify anomalies more quickly and make necessary changes to an assignment package before there’s a significant cost overrun. Performing costing scenarios based on current assignment packages and comparing them with alternatives is also helpful.
  2. Assignees should be required to request exceptions in writing, inclusive of the cost of the exception and their rationale for requesting it. This formal, written process often puts assignees off requesting exceptions that are anything but legitimate.
  3. Involve the international mobility team in the exception management process, as they have a good understanding of the intent of the international assignment policy as well as the true costs and implications of proposed exceptions in the authorization process. Hence, line managers should inform or consult with the international mobility team before agreeing to any policy exceptions during the salary negotiation process. Mobility can create a documented repository of any such exceptions granted.

Read the rest of this article in the September 2018 edition of Mobility Magazine.