May 12, 2020
The Psychological Contract, The International Assignment and The Pandemic
The concept of the psychological contract which describes the relationship between an employee and their employer outside of the visible employment contract has been evolving over the last 60 years and continues to contribute significantly to human resource management practices. Whereas the visible employment contract identifies responsibilities in a generalized form, the unwritten psychological contract refers to the broader expectations of inputs and outcomes of both parties.
Though the employment contract may remain static, the psychological contract may evolve over time as both the employer and employee’s expectations of each other change both in terms of contribution and, amongst other things, reward.
Reflecting on this from a global mobility perspective, it’s easy to see how an international assignment may cause a shift in the psychological contract. The assignment letter of course adjusts the visible contract. However, although the days of gold-plated assignment packages with generous foreign service premiums are long gone, a significant majority of organizations provide international assignees with a package which represents value for the organization and gets the right person in the right place at the right time. As talent is a scarce resource, there is a strong argument to support the investment in deploying that talent to the right area of the organization. This is a perception which can be held by both parties. Whilst it’s true that globalization has swelled the ranks of globally mobile employees, there is nevertheless a virtuous stigma associated with selection for an international assignment. Our recent polling suggests that the ‘tap on the shoulder’ is still more common than a rigorous candidate selection process. Many global mobility professionals will no doubt offer a wry smile in acknowledgement of this shift witnessed in their own assignee populations. It manifests itself in a variety of global mobility activities ranging from exception requests to difficult discussions around housing allowances and changes in cost of living adjustment.
The management of these routine global mobility operations may result in marginal, most likely temporary shifts in the psychological contract that are unlikely to take on any long-lasting effect. A black swan event such as the current pandemic however, has created a variety of unprecedented scenarios which affect the assumptions made in the psychological contract model. In the diagram shown the market or macro environment influences both the employer and the employee collectively and individually, however both parties have a wide scope to operate autonomously within certain limitations. However, in the present crisis, the market assumes a much more dominant role as we can see from the evolved state on the right-hand side of the diagram. It compels the employer to make tough choices by the necessity of differing decisions taken by governments around the world to protect lives. Global mobility teams become part of actions taken by an organization in each of its operating locations and therefore necessarily influence the psychological contract with the employee.
Global mobility teams have needed to react in a variety of ways to support expatriate employee populations across the globe over recent weeks. Here we have outlined just some of the challenges organizations have encountered and how they have managed them in a way which maintains that psychological contract.
One of the challenges global mobility teams have been grappling with over recent weeks has been how to treat assignment allowances. Where the assignee has returned home, many organizations have taken a logical decision to suspend allowances such as COLA and location specific allowances. Where an assignee has either chosen to go or has become stuck to a third country location, many organizations are reviewing situations on a case-by-case basis.
Many organizations are now approaching the period where they would typically review COLA in line with revised indices and annual adjustments to base salary. In the current circumstances, where assignees have been subject to a reduction in salary in line with many of their peers, global mobility must take a decision as to whether or not to adjust COLA in line with the assignee’s diminished purchasing power. Organizations we have spoken with recently have chosen not to adjust COLA downwards in line with any salary reduction where the assignee remains in the host location.
Of course, as with many things in mobility, it is difficult to apply a hard and fast generic rule. With many countries applying a minimum salary threshold for immigration requirements, global mobility teams often need to take an approach at an individual level.
Many organizations have taken the decision to end assignments early either because they were approaching the planned end date already or because the requirement for the assignment is no longer there (for example a cancelled project). The careful planning of repatriations and reintegration into the home business which has long been a focus of global mobility professionals, has forestalled in the current crisis. Indeed, some organizations are challenged with assignees repatriating prematurely but having no immediate role in the home business to come back to. Startling post assignment attrition rates have for many years been cited as an outcome of poor repatriation planning with HR and global mobility teams bemoaning the wasted investment in an international assignment only to see talent leave for the competition. Under normal circumstances it is easy to see how the absence of end of assignment and career planning for assignees starts to change the psychological contract between the employer and the employee. In the current circumstances, there is a real risk of organizations losing talent as a result of the shift in the market.
Stealth expats isn’t a topic which rears its head too frequently these days, however a good number of organizations will admit, when pressed, that they do have a number of ‘over-stayers’ hiding in plain sight. Some organizations have leveraged the present need to cut costs to revisit the subject and to gain support for moving perennial assignees onto local packages. This approach appears to be more of a rebalancing of the psychological contract than creating a fundamental shift.
Flexibility has been the key to success for global mobility teams across the globe as they’ve juggled the various tasks of understanding where their expatriate employees are and how to keep them safe and compliant from a tax and immigration perspective. Numerous organizations have shown flexibility in supporting with accommodation costs for employees stranded outside of the assignment location and employees not able to access their home country property when they’ve returned. Whilst these additional costs will not be welcomed by the business in these economically turbulent times, the relationship between a talented employee and their employer is likely to benefit over time.
International new hires
Many organizations have turned to virtual assignments as a way of filling immediate business needs. The need to acquire talent hasn’t completely disappeared and as a result, companies are onboarding new employees through a virtual assignment with the intention of physically relocating them when it is safe to do so. For these employees their psychological contract is likely to go through several evolutions during the first year of employment. Organizations will need to be mindful of this as they engage, utilize and retain key talent.
In conclusion, this pandemic crisis has shifted the dynamics of the psychological contract between the employer and the employee. There are a multitude of examples of global mobility teams working in organizations to treat their talent equitably and therefore maintain or even strengthen the relationship between the two parties.
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As Account Director at Sterling Lexicon, Stuart focuses on working with clients to optimize their global mobility solutions. Stuart has worked in global mobility for 24 years. His broad experience of working with different program sizes across a variety of industry sectors helps to bring success to clients' programs and wider business strategies. If you would like to discuss any of the points raised in this article or learn more about Sterling Lexicon, please do not hesitate to contact Stuart Jackson at firstname.lastname@example.org.