Hiring the right talent overseas is not only about identifying top performers but also understanding the constraints in attracting and ultimately retaining talent. This article seeks to show why it is about far more than conventional talent management tools.
There are two approaches to hiring the right talent in your overseas operation. You either recruit it locally or send a proven ex-pat overseas. Easier said than done as even with the best-laid plans large companies can find recruiting talent a difficult process.
Business schools often use Disney’s move to Paris as a case study of a less than seamless setup. With this European move, they tried to export the Disney Floridian model to Paris by sending in large numbers of talented ex-pats to work with newly recruited local talent. This had some success (but maybe not as seamlessly as you might think) and it was not without its teething problems. For example, recruiting chefs for the new Paris theme park should have been the easiest talent-spotting exercise ever. Paris is renowned for its food and restaurants so the chef talent pool is large. True but two factors worked against Disney. The travel time to Marne la vallee (location of Disney) was 30 km east of Paris and there was also a perception amongst some culinary staff that they would only be flipping burgers which was obviously not befitting of their talent. Somewhat unfair actually as there were some fine dining experiences situated in Disney Park. These factors, therefore, meant there were fewer applications for the positions than expected. So this went from an easy talent exercise on paper to a tricky headhunting exercise across Dutch culinary schools and North West US hotel chains to find chefs.
United Airlines needed to recruit Hindi-speaking flight attendants for a new flight between London Heathrow and Delhi. If you know the Heathrow area in West London there is a really nice Asian community just a stone’s throw away from the airport. United assumed they would find their Hindi-speaking flight attendants there. Guess what Gudrati and Punjabi were the languages spoken in these communities meaning a wider talent search was required. So even large companies have problems finding talent.
Where you have in-house systems and procedures that need to be replicated in your overseas operation, it is useful in the early stages to use an ex-pat with company experience to work alongside some newly recruited local talent. However, If you need to bring in ex-pats, the overall cost of hiring them is generally three times their base salary.
Often the first tentative step into a new country is to identify a talented sales or country manager. Hiring locally and you will be lucky if you can do this by networking or word of mouth. The normal tools of attracting candidates such as your employer brand, career opportunities may not be in place. The Key will be determining a market rate salary to attract your talent. Realistically you will probably use a recruitment agency either on a contingency or ad hoc basis. Fortunately, recruitment fees tend to be similar overseas to those in the U.S. With contingency, the fee will be lower (around 20% of the first-year salary) as you offer the assignment to multiple agencies. Experience suggests that when recruiting into an unfamiliar overseas market an ad hoc approach is preferable. This is where the recruitment is assigned to one agency and you pay say a third of the fee upfront, a third on the presentation of shortlist, and a third when a candidate starts. (Around 30% of the first-year salary).
Local top professionals will expect compensation packages equal to those in North America and Europe. This is also true in China where even with a population of a billion people, there are only a small percentage speak English and are accustomed to working with US companies.
So great that you have found your candidate, but now you have to play serious catch-up in terms of making sure they are employed correctly. While this should not be an issue for large companies it can be a headache for smaller companies.
In order to be able to payroll your talent and manage withholdings, you need to choose an appropriate local entity, (representative office, Branch or full Subsidiary). The type of entity depends on many factors around the activities that the company is performing in the country. When moving into a new country you would hope to find flexible talent who will accept that being an early recruit presents a great opportunity but probably means that there will be some teething issues in terms of set up etc
Staff will be reassured if they receive employment documentation and benefits compliant with the country employment framework. You will not be able to use any of your US employment material as each country had its own body of employment law which has to be reflected in the documentation. It is imperative to seek advice and check every clause in local contracts
When asked to input on the employment costs in a new territory it is very easy to concentrate on the headline figures – base salary, bonus, car, etc. However, if you restrict your benchmarking to this you may find yourself in a tight spot with your finance department after hiring your first employee and one or two pay runs. Let's consider some of the most commonly overlooked items
Social security contributions are a real cost to you, and they vary significantly between countries. So on the basis that for most countries the employer contribution is circa 10% and subject to salary capping in other countries such as France the rate is roughly 44% and applies to uncapped earnings ( including bonuses). So a senior sales employee in France with OTE of $200k will cost you $88k in social security contributions. But you should not make your decisions solely on cost as France takes a long-term view of employment and has some great pockets of talent and expertise.
There are also mandatory extras and the difficulty with these are that they are difficult to track down. Therefore brace yourself for mandatory profit-sharing in Mexico, mandatory life insurance in Argentina, mandatory workers compensation insurance in Australia, Belgium, UK, Singapore etc, a mandatory study fund in Israel.
There are also some elements of employment that are customary –the difficulty with anything considered customary is that whilst it is expected for locals it is generally unexpected for everyone else. Therefore if we apply this to recruitment there are certain elements of an employee package that may not be discussed during offer negotiations because they are expected by the candidate ( and yet so completely leftfield that they are not considered or mentioned by the foreign employer). Therefore be mindful that despite not being expressly agreed (nor budgeted for) employees in Latin America and Southern European countries will expect luncheon vouchers, and that Japanese employees will expect a commuting allowance, and in many countries employees will expect a 13th month or 14th-month salary payment. For the unwary, all of these will add to your monthly employment costs.
What if your talent is less talented than you thought and turns out to be a dud. Be extremely mindful outside of the U.S. especially in the EU, of termination costs. They can be quite high in just about any other country that's different from the U.S. where you have employment at will. One of the things in the UK specifically to be mindful of would be following a really strict protocol if you do need to dismiss somebody after their probationary period in terms of following the proper guidelines. Failure to do so can result in charges of unfair dismissal which is a really important and painful concept outside the US. Worst case scenario and it can cost $125,000 or more if not handled within strict compliance of the requirements Avoiding the UK purely because of strict unfair dismissal rights would however be a mistake if you failed to also consider that employees only secure these rights after 104 weeks service – likewise in Germany employees only gain unfair dismissal rights if they work in a workplace with 10 or more employees. An understanding of the local rules and how to avoid them can seriously reduce your local employment costs.
There is one further problem with a remote workforce and that is the matter of performance management.
I hate to tell you this, but there are some less talented candidates that target US companies, for the sole reason that their performance goes untracked. Once their incompetence is noticed they will have full unfair dismissal rights and their employer will struggle to terminate them without a sizeable settlement and a glowing reference ......and on to their next US employee. To avoid being the next victim you need to determine your timetable for the first year with key milestones highlighting when probationary periods end or unfair dismissal rights are attained. For example in Australia unfair dismissal rights are attained on six months service, in the UK this is 2 years’ service, and for an example of where tracking formal probationary periods is important we can look to Italy where during the first 6 months a senior employee can be terminated without cause or a notice period but after which they can only be terminated with a 6 month notice period and just cause ).
One final point that I am often asked from U.S. clients is whether it is necessary to have a locally compliant staff handbook. If you have five or fewer employees in the country I would say don’t bother. Your U.S. handbook will not be exportable and only the very general clauses on for example companywide recognition policies will be usable. Many countries have very transparent employment laws and there are also different sector Collective Bargaining Agreements that add an additional layer of employee benefits. So you do not need to replicate these in a handbook which would be costly to produce and require at least yearly updating.