How are expat salaries calculated?

Many people have the impression that expatriates earn a lot of money. In fact, tensions are sometimes created in subsidiaries of large companies where the locals may be earning a lot less than half of the money of expats working in similar positions of responsibility.

To understand this better, it is useful to have a idea about how companies go about calculating compensation for expatriates. One of main factors is something called the ‘hardship allowance‘, which can be defined as the:

premium compensation paid to expatriates who experience – or should expect to experience – a significant deterioration in living conditions in their new host location.

Roughly translated, this means that the worse the place is, the more you get paid. So, how do you judge one destination against another? One of the main benchmarks which can be used are quality of living indices. There are a few of these created by different organisations. A good place to start is Mercer (which is one of the largest HR consultancies in the world) – a lot of the information is subscription only, but there are some useful articles and information on the site.  In their 2009 Quality of Living Survey, they have some interesting information which can also be used by expats when evaluating pay and prospects when moving from one country to another. For further information, you can also have a look at our analysis of expat salaries.

Best quality of life for expats

Mercer evaluated the following cities as having the best overall quality of life for expatriates:

1. Vienna, Austria
2. Zurich, Switzerland
3. Geneva, Switzerland
4. Vancouver, Canada (tied 4th)
5. Auckland, New Zealand (tied 4th)

The worst places to go and work in included Bagdad, Brazzaville and Khartoum – for pretty obvious reasons!