How does the balance sheet approach impact expatriate compensation?

The balance sheet approach to expatriate compensation is primarily designed to ensure that employees on international assignments maintain their purchasing power and overall financial stability while living in a different country. This approach involves adjusting salaries based on the cost of living differences between the expatriate's home country and the host country.

When an employee is assigned to work in a foreign location, it is crucial to consider factors such as housing, taxes, and general living expenses, all of which can significantly vary from one country to another. By adjusting salaries to reflect these differences, the balance sheet approach aims to equalize the financial situation of expatriates with that of their peers in the home country, thereby addressing the disparities that may arise from relocating to a new environment.

As a result, expatriates can focus on their work and adapt to their new surroundings without facing financial disadvantages. This method of compensation helps encourage mobility and makes international assignments more attractive to employees.