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Putting expatriate compensation data to work for you
Page 2
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.
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Agenda
► Value equation ► Evolution of data utilization ► Total assignment cost reporting ► Financial controls ► Financial metrics, accruals, cash flow and planning ► Invoicing ► Achieving future state
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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
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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.
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Value equation
► Control ► Compliance ► Information ► Impactful communications ► Cost = value ► Comfort ► Vision/insight ► Relevance to business
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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
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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
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Program cost reporting
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Polling question
Do you feel you currently have adequate access to total assignment cost reporting? ► Yes ► No
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Total assignment cost reporting
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
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Total assignment cost reporting
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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.
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► 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*
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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.
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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 7,539.26 6,197.45 1,341.81 18% 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
JOEB1235 10,419.64 8,588.44 1,831.20 18% Low Amount paid differs from amount instructed
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
DOEJ5432 3,253.99 3,134.00 119.99 4% Low Amount paid differs from amount instructed
DOEJ5432 11,114.94 10,534.15 580.79 5% Low Amount paid differs from amount instructed
DOEJ5432 9,979.98 9,323.40 656.58 7% 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%
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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.
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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
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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
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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:
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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
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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.
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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
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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
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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
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Thank you