putting expatriate compensation data to work for you - ey · putting expatriate compensation data...

Putting expatriate compensation data to work for you

Disclaimer

► EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.

► This presentation is © 2015 EYGM Limited. All Rights Reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.

► Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP.

► This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances.

► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.

Agenda

► Value equation ► Evolution of data utilization ► Total assignment cost reporting ► Financial controls ► Financial metrics, accruals, cash flow and planning ► Invoicing ► Achieving future state

Presenters

► Tracy Gorman ► Mobility Director ► Novelis Inc.

► Sean Watts ► Partner – Global Compensation Services ► Ernst & Young LLP

► Matt Blaker ► Partner – Global Compensation Services ► Ernst & Young LLP

Polling question

Where would you rank your organization’s gathering and use of assignment compensation data? A. We do not gather it very well. B. We have a strong process in place to gather the data. C. We have access to all the total assignment cost reporting that we need. D. We use cost reporting to help with financial planning and accruals. E. We use cost reporting to help us with benchmarking and strategic planning.

Value equation

► Control ► Compliance ► Information ► Impactful communications ► Cost = value ► Comfort ► Vision/insight ► Relevance to business

Cost data evolution

Value to your organization

Depth of data usage

Basic compensation collection for compliance

Total assignment cost reporting

Financial metrics, accruals, cash flow, financial controls

Variances and demographic analyses

Program benchmarking and strategic decision-making

Where market appears to be today

Future state – compensation data

Regular centralized

process

Cost estimates

Accruals

Return on investment

Financial controls

Invoices

Cost reporting

Vendor management

Global cross-charging

Project costing

Benchmarking

Cost trending

Program cost reporting

Polling question

Do you feel you currently have adequate access to total assignment cost reporting? ► Yes ► No


of respondents in this year’s EY Global Mobility Effectiveness Survey ranked “accessing total program cost management information” as their top business challenge in managing assignee compensation.

43.8%

Challenges ► Availability, consolidation and

analysis of all cost data globally ► Lack of awareness of range of

ways to use total cost data ► Lack of granularity ► Cash flow and expense timing ► Complete data set

Approaches ► Implement a formal

compensation accumulation system

► Apply data analytics to interpret and appropriately use data

► Leverage total cost data, budgets and accruals to drive strategy

Total cost reporting challenges

► Collecting and translating all sources of data remains a continuous challenge.

► Timing differences make it difficult to accurately determine cost of program.

► Actual cost data needs to be combined with accruals and cash flow analysis to determine trends across years.

► Program size fluctuations require additional analysis to determine actual cost trends.

Your customers are demanding more precision in cost reporting, which is putting greater emphasis on data quality and analysis.

► New policy implemented in 2014 that impacts both tax and assignment costs and we need to provide insight into our HR business partners on savings generated.

► A straight comparison of 2013 to 2014 is not adequate to demonstrate cost savings, which requires additional data and analysis.

► *It appears our savings related to policy changes did not work.

Example

Year

Actual assignment

costs Tax costs Total program

costs Savings

2013 US$100 million US$40 million US$140 million

2014 US$90 million US$60 million US$150 million -US$10 million*

Example

Year

Actual assignment

costs Actual tax

costs Tax

adjustments Tax accrual Actual cost Actual

savings

2013 US$100 million US$40 million US$20 million taxes paid in 2014 for 2013

US$10 million US$170 million

2014 US$90 million US$60 million -US$20 million for 2014 taxes paid in 2013

US$30 million US$160 million US$10 million

► Adjustments to data need to be made to address cash flow, and population changes to identify true savings.

► The proper alignment of actual and future costs allows us to precisely identify costs and savings.

► Additional considerations related to population size should also be considered.

Payroll No

Instruction amount

Reported amount

Variance amount

Percentage Priority Message

JOEB1235 8,854.79 18,366.00 -9,511.21 -107% High Amount paid differs from amount instructed

JOEB1235 15,570.42 15,562.02 8.40 0% Low No variance

JOEB1235 10,321.93 8,658.66 1,663.27 16% Low Amount paid differs from amount instructed

JOEB1235 6,477.62 5,601.75 875.87 14% Low Amount paid differs from amount instructed


JOEB1235 8,410.52 7,538.34 872.18 10% Low Amount paid differs from amount instructed

JOEB1235 2,477.43 2,477.00 0.43 0% Low No variance


DOEJ5432 13,514.60 13,355.10 159.50 1% Very low Excluded variances

DOEJ5432 5,473.56 4,146.55 1,327.01 24% Low Amount paid differs from amount instructed

DOEJ5432 15,857.32 13,234.45 2,622.87 17% Low Amount paid differs from amount instructed

DOEJ5432 5,163.83 2,956.75 2,207.08 43% Medium Amount paid differs from amount instructed

DOEJ5432 10,205.80 10,205.00 0.80 0% Low No variance

DOEJ5432 22,030.05 21,480.75 549.30 2% Very low Excluded variances

DOEJ5432 14,781.63 14,197.00 584.63 4% Low Amount paid differs from amount instructed




Variance reporting

USA

Instruction currency USD Reported

currency GBP High Variances above +/- 50%

Medium Variances between +/- 30% and +/- 50%

Low Variances below +/- 30%

Very low Variances below +/- 2.25%

Financial controls

► Significant increase in use of compensation data to implement financials controls across the mobility program ► Pay instructions to actuals ► Cost estimate to actual ► Budget to actuals ► Validation of reporting of cross-border equity ► Validation of home and host payroll reporting obligations are met

► Vendor management ► Variance analysis is available to validate you are being invoiced and paying mobility

vendors correctly. ► By implementing a budget to actual procedure you create a profile for each category

and segment the population to test each vendor’s actual expenses as compared to profile.

► Typical items which are reviewed for vendor management are vendor fees, household goods fees, education costs and miscellaneous relocation allowances.

Variance testing

Typical variance tests: ► Budget to actual ► Cost estimate actual ► Actual costs year over year ► Pay instructions to actual ► Payments or costs across time

periods ► Vendor contracts to actual

Financial planning accruals, cash flow analysis and budgeting

► Plan and budget for accruals at the beginning of the assignment ► Forecast cash flow for business units based on varying tax reporting

scenarios: ► Monthly ► Annual

► Establish periodic process: ► Test validity of accruals ► Adjust accruals as necessary ► Customers are more savvy and demand more accrual precision

► Develop business unit-level budgets based on current population, actual costs and expected growth of the population

► Avoid messy surprises later in the assignment or even after the assignee has repatriated

Cash flow planning

2014 2015 2016 2017 Total cost

Relocation costs $ 134,305.00 $ – $ 71,763.00 $ – $ 206,068.00

Annual expat benefits $ 460,989.00 $ 470,626.00 $ 497,781.00 $ – $ 1,429,396.00

Total expat benefits $ 595,294.00 $ 470,626.00 $ 569,544.00 $ – $ 1,635,464.00

Taxes

Hypo taxes $ (130,924.00) $ (133,864.00) $ (138,011.00) $ – $ (402,799.00)

US taxes $ 330,778.00 $ 287,949.00 $ 310,598.00 $ – $ 929,325.00

Singapore taxes $ – $ 195,811.00 $ 169,967.00 $ 183,171.00 $ 548,949.00

Annual cost without accrual $ 795,148.00 $ 820,522.00 $ 912,098.00 $ 183,171.00 $ 2,710,939.00

Annual cost with accrual $ 990,959.00 $ 794,678.00 $ 925,302.00 $ – $ 2,710,939.00

US to Singapore Annual tax payment the following year:

Cash flow planning

US to China China taxes are paid monthly. Some residual taxes may occur during annual filing process; however, majority will be paid monthly.

2014 2015 2016 2017 Total cost

Relocation costs $ 115,281.00 $ – $ 68,323.00 $ – $ 183,604.00

Annual expat benefits $ 484,810.00 $ 473,478.00 $ 457,100.00 $ – $ 1,415,388.00

Total expat benefits $ 600,091.00 $ 473,478.00 $ 525,423.00 $ – $ 1,598,992.00

Taxes

Hypo taxes $ (244,307.00) $ (245,844.00) $ (251,299.00) $ – $ (741,450.00)

US taxes $ 166,134.00 $ 145,835.00 $ 142,708.00 $ – $ 454,677.00

China taxes $ 579,261.00 $ 532,093.00 $ 563,020.00 $ – $ 1,674,374.00

Annual cost without accrual $ 1,101,179.00 $ 905,562.00 $ 979,852.00 $ – $ 2,986,593.00

Financial planning accruals, cash flow analysis and budgeting

► Significant effort has been placed on comparing cost estimates to actuals to test the validity of costs estimates.

► Very little has been done to leverage the actual cost data to determine the inputs into the cost estimate process (housing, education, shipment of household goods, etc.).

► Little effort is placed on actual assignment implementation vs. cost estimate to reevaluate costs (e.g., payment timing and location).

► Helping drive corporate strategy headquarter moves, group moves and employee terminations.

Your ability to shift the mobility function from reactive reporting to planning, budgeting and strategy definition will increase mobility’s

relevance to the organization.

Invoicing

► You have all the data you need to implement invoicing and cross charging platform: ► Total expense (payroll, vendor, accounts payable) ► Source and location of payments ► Location of the employee ► Date of payments

► Types of invoicing: ► Global employment company ► Invoicing to projects ► Invoicing to client – cost plus arrangements

Value and relevance to your customers

Increased clarity

Looking at where you have been

Show your customers how to get there

Data analytics evolution

Define where you are going

Future state –compensation data

Regular centralized

process

Cost estimates

Accruals

Return on investment

Financial controls

Invoices

Cost reporting

Vendor management

Global cross-charging

Project costing

Benchmarking

Cost trending

Thank you

putting expatriate compensation data to work for you - ey · putting expatriate compensation data...

Documents