Our clients often ask us for help drafting offer letters, or letters of assignment, which address the terms and conditions of an assignment so there is a clear understanding between the employer and employee.
Although on the surface this task may seem simple, there are some important basics to keep in mind:
Base Salary and Incentive Plans: Typically, the first question your employee has will be how he or she is going to be compensated. Be sure to express salary and other components in home country currency and pay delivery method. By addressing as many potential questions as possible before they are raised, you’ll not only help reduce your employees’ stress level, you’ll also help them make informed decisions about the transfer or assignment.
Healthcare Benefits and Pension Plan: Right up there with concern for compensation is health coverage and planning for the future. For international moves, even if coverage will be provided in the host country, most employees will want to know about this coverage and whether or not they still have the option to remain on their home country plan.
Issues of Compliance
Immigration: Your employees and any accompanying family members need to know the critical importance of having the proper travel documents and visas to be permitted to work in another country. Not following the proper visa process could result in deportation of the individual and family, or worse, shut-down of company operations in that country.
Tax: Likewise, since some but not all expenses and allowances associated with relocation (domestic and international) are taxable, it is essential that the company provide guidance to ensure that the employee is compliant with tax law in the new location. Even though it is ultimately the employee’s responsibility to pay the correct taxes, the company carries some obligation to provide thorough guidance from professional resources.
Allowances and Deductions: It is likely that your policy addresses payment of various allowances, but not necessarily the specific amounts or allowance types, since they may vary from homeowner to renter, short term to long term, and new hire vs. experienced senior executive, to name a few. Therefore, the Offer Letter should contain the specific allowances to be provided and the amounts to be paid. If these are not a fixed amount, then the method of calculation should be detailed. In the case of any deductions (such as housing contribution or negative COLA), the formulas and thresholds used should also be discussed.
Discretionary Benefits: If your policy contains a set of benefits that are not always standard (language instruction, education assistance, car allowance, etc), the ones to be provided in each specific case should be addressed in the letter, along with any limitations or monetary caps. Even though these benefits will be explained in greater detail by the relocation advisor, it is best practice to set expectations by introducing these benefits and clarifying these services at the onset. Providing such information early on in the process is also very helpful for overall timeline planning purposes.
Repayment Agreements and Termination Policy: If your company intends to implement a repayment agreement, this is the appropriate place to communicate this information. There are many ways to handle repayment agreements, and regardless of your company’s philosophy on them, it is critical that they be reviewed and approved by legal counsel. Likewise, you may have different repayment agreement terms that complement voluntary vs. involuntary terminations. Therefore, your termination policy(ies) must also adhere to labor laws that govern the transfer or international assignment.
Note that while the above is NOT a comprehensive list, but is intended as a guideline to typical basic policy and offer letter components. Above all else, you should be sure that your legal team has a chance to review it to ensure compliance with labor, tax, and immigration laws as well as your company’s own code of conduct and ethics.
By taking the time to ensure that the information provided in your offer letter is clearly articulated, thorough, consistent and unambiguous, you’ll be setting clear and reasonable expectations which ensure highly satisfied employees and set the stage for successful transfers and assignments.
International Assignment Letter
December 18, 2012
Mr. David W. Keck
11754 Windemere Dr
Missoula, MT 59804
This letter (referred to as the Assignment Letter) outlines the terms and conditions of your international assignment (the International Assignment) pursuant to which you are to be seconded to GT Advanced Technologies Limited, a subsidiary of GTAT Corporation (collectively, GTAT). This Assignment Letter, together with any additional documents, agreements or provisions that may be referenced herein, including your Employment Agreement with GTAT, constitutes the entire understanding of your International Assignment in Hong Kong. If questions should arise concerning any provision listed in this Assignment Letter or any subsequent revisions to policies applicable to employees on international assignment, you are urged to consult with your contacts for Human Resources matters: Ada Lui and Pat Moquin. Please note that the terms and content of this Assignment Letter are confidential and may not be directly or indirectly disclosed by you to any other party other than your direct manager, family or legal representation (as may be applicable).
GTAT will not guarantee the term of any international assignment. Your International Assignment and overall employment with GTAT will continue as long as mutually acceptable.
The terms and conditions of this Assignment Letter will be governed by the laws of the State of Montana, USA.
This Assignment Letter does not create a contract of employment between you and GTAT for any specified period. Your employment with GTAT shall continue to be subject to the terms and conditions of your Employment Agreement.
Effective Date of Assignment: January 1, 2013
Title: Executive Vice President and General Manager Polysilicon and Photovoltaic Equipment
Assignment Location: Hong Kong
Reporting: Directly to Dan Squiller, President Crystal Growth Systems and Worldwide Operations
Expected International Assignment Term: Three (3) years beginning on Effective Date
During the course of your International Assignment in Hong Kong, the features of your compensation and benefits package will be as follows:
1. Compensation: Your base salary is US $375,000 per year. Your base pay and any applicable bonuses described below will be subject to hypothetical tax withholding (see Tax Equalization at Section 10 below) and shall be paid in US Dollars in accordance with regular GTAT payroll practices.
2. Management Incentive Plan: You will continue to be eligible to participate in the GTAT 2012 and 2013 162(m) Performance Plans. Any bonuses awarded to you under these programs will be paid to you in US Dollars, with the target opportunity at 75% of your annual base salary. Your bonus amounts may be subject to hypothetical tax withholding (see Tax Equalization at Section 10 below).
3. Host Country Housing: During your International Assignment beginning January 1, 2013, GTAT will pay the rental amount for your host country housing in an amount not to exceed US $18,500 per month (which amount includes the cost of renting furniture and other customary household goods which shall be paid directly by GTAT to the applicable rental agency if possible), plus any applicable rental deposit and such amount shall be paid directly by GTAT to the rental housing landlord in Hong Kong if possible.
Additionally, GTAT will reimburse you for the reasonable utilities associated with the rental of your unit, including heat, electricity and water. GTAT will also pay for the services of Jones Lang LaSalle, an agency that will assist you in your housing search.
4. Relocation Allowance; Repatriation Allowance: GTAT will pay for economy-class airfare and other reasonable travel expenses such as meals and transportation service to and from the airport for you and your family for travel to your host country upon commencement of the International Assignment up to a total amount of US $8,000. The same provision will be provided to you for your return back to your home country.
GTAT will also pay for the shipment and insurance of up to 1,000 pounds of your household goods from Montana to Hong Kong via air freight; provided that such amount may be increased for additional expenses which may be deemed reasonable by GTAT. The same provision will be provided to you for your return back to the United States at the end of your International Assignment.
Additionally, at the time of your move to Hong Kong, GTAT will pay you a relocation allowance of US $20,000 in order to cover your additional costs associated with setting up a home in Hong Kong. At the end of your International Assignment, GTAT will pay you an additional US $15,000 to cover the costs associated with your return to your home country.
5. Assignment Travel: GTAT will pay for the economy-class airfare for you and your family to travel back to your home country once per each 12-month period during your International Assignment up to a total amount of US $19,500 per round-trip.
6. Monthly Stipend. During your International Assignment, you will receive a monthly stipend of US $8,000 for meals and other incidental expenses.
7. Dependent Education: GTAT will pay for the costs for two (2) of your children to attend a private school in Hong Kong up to US $30,000 per academic year per child for a total of US $60,000 per academic year. Covered costs include tuition, fees, books, transportation and uniforms. Jones Lang LaSalle will provide assistance on such matters, and GTAT will pay for such services.
8. Medical and Travel Accident: While on International Assignment, (a) you and your familys medical and dental coverage will continue under CIGNA; and (b), you and your family will be covered under the provisions of the GTAT Travel Accident Program which maintains provisions for evacuation in the event of a medical emergency.
9. Voluntary Termination and Involuntary Termination for Cause: Notwithstanding anything in this Assignment Letter to the contrary, you acknowledge and agree that GTAT reserves the right not to pay for or reimburse any repatriation travel expenses in the event: (i) you voluntarily terminate the International Assignment; (ii) you voluntarily terminate your employment with GTAT; or (iii) GTAT terminates either the International Assignment or your employment with GTAT for Cause, as defined below. In the event of either a (a) voluntary termination; or (b) involuntary termination for Cause, all benefits and allowances will cease immediately upon such termination of employment. You will be required to vacate and return any employer-owned or leased property immediately. Furthermore, if any such voluntary or involuntary termination for Cause should occur within the first six (6) months of your International Assignment, you acknowledge and agree that GTAT reserves the right to require you to reimburse GTAT for any expenses related to the International Assignment. The amount and nature of any such reimbursable expenses shall be determined at the sole discretion of GTAT; provided, however, that the total reimbursable amount shall not exceed the amounts disbursed by GTAT pursuant to the terms of this Assignment Letter.
For the purposes of this Assignment Letter, Cause is defined as:
a. A conviction for a misdemeanor involving moral turpitude or any felony.
b. Engagement in conduct which is materially injurious (monetarily or otherwise) to GTAT or any of its affiliates (including, without limitation, misuse of funds or other property of GTAT or its affiliates).
c. Engaging in gross negligence or willful misconduct in the performance of duties.
d. Willful refusal without proper legal reason to perform job duties and responsibilities.
e. Material breach of any material provision of any agreement between you and GTAT, or
f. Material breach of any material corporate policy set up and maintained by GTAT that applies to you.
10. Tax Equalization: While on International Assignment, you will be under obligation to abide by all laws of both the United States and Hong Kong, including the proper payment of income taxes.
It is the policy of GTAT to equalize your tax cost to what you would have paid had you not received International Assignment allowances or received special tax considerations as a result of working overseas. GTAT will pay any of the Hong Kong taxes and any excess United States taxes that will be due on your allowances.
Without tax equalization, you would find your actual income taxes; cash flow and purchasing power while on International Assignment could be different than had you remained in the United States. For example, International Assignment-related allowances and reimbursements may be taxable in the United States and may also be subject to Hong Kong income taxes. Furthermore, as you are a United States employee, you may qualify to exclude a portion or all of your overseas earned income from United States taxes and/or your United States tax may be reduced by a foreign tax credit. All of these factors will significantly affect your tax liability and thus your after-tax income.
The objective of this tax equalization policy is to provide a framework whereby you may be transferred to and among GTATs international locations while incurring an individual tax burden similar to that which you would have paid had you not received allowances and special tax considerations resulting from you International Assignment.
The following are highlights of the policy:
Actual Taxes In the event you incur any additional tax costs due to your International Assignment, GTAT may pay your actual home and host country taxes, subject to certain limitations. In the event GTAT pays the aforementioned home and host country taxes, you would be required to contribute a hypothetical tax amount as described below.
Hypothetical Taxes You may be responsible for paying hypothetical taxes each pay period in the event GTAT pays your home and host country taxes as described above, similar to employees who are paying actual income taxes through payroll withholding. This amount is not paid into the tax authorities but is instead a reduction of salary. The
amount of hypothetical tax paid through your regular pay period compensation is called the estimated hypothetical tax. Since the estimated hypothetical tax is only an estimate, after all tax returns have been filed, a final hypothetical tax calculation will be prepared to compute your final stay-at-home tax responsibility.
The hypothetical tax that you will be responsible for will include appropriate federal hypothetical obligations. Personal exemptions, allowances, and deductions based on the tax law in effect in your home country will be allowed in computing the hypothetical tax. You will also continue to contribute to United States FICA and Medicare. Details of the tax equalization policy will be reviewed with you by our tax advisor.
Tax Protection The following items will be considered tax protected under tax equalization:
a. Host Country Housing & Utilities,
b. Transportation Costs (to the extent such costs are subject to tax),
c. Relocation Allowance,
d. Monthly Stipend,
e. Dependent Education, and
f. Repatriation Allowance
Personal income received by you other than compensation from GTAT will not be covered by the tax equalization discussed herein. Income from the exercise of stock options will be considered personal income for this purpose.
11. Tax Preparation: As a condition of this assignment, you will be required to use the services of GTATs public accounting firm PricewaterhouseCoopers for the preparation of your income tax returns (includes any necessary services pertaining to Hong Kong, United States and Montana). The costs of these services will be paid by GTAT. Upon acceptance of this agreement, a representative will be contacting you to begin that process. Although GTAT provides tax assistance to you via the services of PricewaterhouseCoopers, you are expected to make every effort to ensure that your home and host country tax requirements are fulfilled.
12. End of Assignment: As the International Assignment is temporary, we expect you to return to your home country at the completion of your International Assignment.
13. Immigration: GTAT will assist you in obtaining the necessary visas and work permits pertaining to your International Assignment. If necessary, GTAT will arrange for an immigration attorney to assist you with the necessary visa and work permit requirements.
14. Physical Examinations and Immunization: You are strongly encouraged to complete a thorough physical examination before departing to your host city. In addition you are responsible for obtaining the appropriate immunizations or medication required of you and your family for entering and/or living in the host country. The costs associated with
any such physical examinations and immunizations will be reimbursed by GTAT upon its receipt of itemized invoices.
15. Emergency Evacuation: Should there be a state of emergency declared in your host country and it is necessary and possible for you, you will be reimbursed for any travel, moving and/or temporary living expenses which may be incurred as a result of such evacuation procedures. In the event of such an emergency, GTAT will assess any long-term effects of the emergency situation pertaining to your International Assignment.
To formally acknowledge and accept your International Assignment pursuant to the terms and conditions contained in this Assignment Letter, please execute where indicated below and return it to my attention. I have included an additional copy for your records.
/s/ Hoil Kim
Vice President and General Counsel
ACKNOWLEDGEMENT AND ACCEPTANCE:
/s/ David W. Keck
David W. Keck
December 21, 2012