Balance Sheet Approach
What is Balance Sheet Approach?
A compensation methodology for international assignees that aims to keep employees financially 'whole' relative to their home country, by separately tracking income, taxes, housing, and goods and services costs.
The balance sheet approach is the most widely used compensation methodology for international assignments. It works by calculating the difference between what an employee would spend in their home country and what they will spend in the host country across key categories: goods and services, housing, taxes, and discretionary income.
The employer then provides allowances or deductions to neutralize these differences, ensuring the assignee neither gains nor loses financially from the move. This approach is typically paired with tax equalization and cost of living adjustments (COLA).
While the balance sheet approach provides fairness and consistency, it can be complex to administer and expensive at scale. Organizations with large assignment populations often invest in mobility technology to automate balance sheet calculations and reduce manual errors.
Related Terms
Tax Equalization
A compensation policy designed to ensure that an employee on international assignment pays no more or less tax than they would have in their home country, with the employer absorbing any difference.
Cost of Living Adjustment (COLA)
A compensation supplement given to assignees to account for differences in the cost of goods and services between their home and host locations, ensuring their purchasing power is maintained.
Total Assignment Cost (TAC)
A comprehensive calculation of all direct and indirect costs associated with sending an employee on an international assignment, used to assess ROI and inform policy decisions.