Putting expatriate compensation data to work for you

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. Page 2

Agenda Value equation Evolution of data utilization Total assignment cost reporting Financial controls Financial metrics, accruals, cash flow and planning Invoicing Achieving future state Page 3

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 Page 4

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. Page 5

Value equation Control Compliance Information Impactful communications Cost = value Comfort Vision/insight Relevance to business Page 6

Cost data evolution Value to your organization Program benchmarking and strategic decision-making Financial metrics, accruals, cash flow, financial controls Total assignment cost reporting Variances and demographic analyses Where market appears to be today Basic compensation collection for compliance Depth of data usage Page 7

Future state compensation data Project costing Cost estimates Global crosscharging Accruals Vendor management Return on investment Regular centralized process Cost reporting Cost trending Invoices Benchmarking Financial controls Page 8

Program cost reporting Page 9

Polling question Do you feel you currently have adequate access to total assignment cost reporting? Yes No Page 10

Total assignment cost reporting 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 43.8% 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. Page 11

Total assignment cost reporting Page 12

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. Page 13

Example 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. 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* *It appears our savings related to policy changes did not work. Page 14

Example Adjustments to data need to be made to address cash flow, and population changes to identify true savings. Year Actual assignment costs Actual tax costs 2013 US$100 million US$40 million US$20 million taxes paid in 2014 for 2013 Tax adjustments Tax accrual Actual cost US$10 million US$170 million Actual savings 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 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. Page 15

Variance reporting Instruction currency USD Reported currency GBP Low Variances below +/- 30% Very low Variances below +/- 2.25% High Variances above +/- 50% Medium Variances between +/- 30% and +/- 50% 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 USA 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 Page 16

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. Page 17

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 Page 18

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 Page 19

Cash flow planning US to Singapore Annual tax payment the following year: 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 Page 20

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 Page 21

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. Page 22

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 Page 23

Data analytics evolution Value and relevance to your customers Show your customers how to get there Define where you are going Looking at where you have been Increased clarity Page 24

Future state compensation data Cost estimates Project costing Global crosscharging Vendor management Accruals Regular centralized process Cost reporting Return on investment Invoices Cost trending Benchmarking Financial controls Page 25

Thank you Page 26