What are your compensation options if you are an employer who needs to transfer an employee from a low cost-of-living area to a high cost-of-living area?

What will be an ideal response?

Answer: Employers have different ways of handling cost-of-living differentials. One is to give the transferred person a nonrecurring payment in a lump sum amount. Another is to pay a differential for ongoing costs in addition to a one-time allocation. Others simply raise the employee's base salary.

For international transfers, companies can go with a home-based or host-based salary plan.

With a home-based salary plan, an international transferee's base salary reflects his or her home country's salary. The employer then adds allowances for cost-of-living differences–housing and schooling costs, for instance. This is a reasonable approach for short-term assignments, and avoids the problem of having to change the employee's base salary every time he or she moves.

In the host-based plan, the firm ties the international transferee's base salary to the host country's salary structure. In other words, the manager from New York who is sent to France would have his or her base salary changed to the prevailing base salary for that position in France, rather than keep the New York base salary. The firm usually tacks on cost-of-living, housing, schooling, and other allowances here as well.
Most multinational enterprises set expatriates' salaries according to the home-based salary plan.