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Expat pay gap closes as executives stay put

Published on Saturday, 05 Jul 2014
Mark Rawson
Lee Quane

Executive remuneration in Hong Kong is changing, with expatriate salaries becoming more aligned with local levels, according to a new survey by ECA International.

According to the recent MyExpatriate Market Pay Survey, Hong Kong is the fifth most expensive location in the region to post expatriate executives to – after Japan, Australia, India and China – but it is overtaking Singapore.

The average value of middle-level executive packages is about US$273,000 per annum, says ECA International, which offers information to companies on how to structure their international reward programmes.

Packages usually consist of salary, benefits and tax. Tax being relatively low in Hong Kong, this leaves a good proportion of remuneration in the employee’s hands. But comparing levels of net cash salary alone, Hong Kong drops to 15th place in the region, with an average annual income of US$82,243 for middle-level executives.

“In Hong Kong, a relatively larger proportion of expats are given exactly the same compensation levels as the locals, in comparison to other locations in the region, particularly when relocating junior staff,” says Lee Quane, regional director for Asia at ECA International. 

Globally, only one in 10 expats’ salary level is aligned with locals; in Hong Kong it is three in 10, he says. This explains the lower level of the cash salary component, compared to other locations in the region.

Staff are also increasingly being transferred on a permanent, one-way basis and their packages are structured in a way that encourages them to stay with the firm in the same country for longer. 

“The packages are more pay-driven and performance-based, with long-term initiatives. They use annual bonuses, stock options and deferred bonuses,” Quane says.

Companies basing salaries on local salary levels are also more likely to offer a leaner benefits package. For middle-management, the company is still likely to provide contribution to housing and children’s schooling, but at a much lower level than to senior executives. Junior executives are even less likely to get aid. 

Many benefits expatriates used to get, such as flights to and from their homeland, allowances for relocation expenses and furniture rental, life and international medical insurance and services like relocation and settlement agents and tax advisors, are not there. 

“This also includes relatively junior middle management staff from the US and Europe. [The transfer] still gives them higher salaries and better opportunities,” Quane says. 

The reverse side of the same trend is the sending of more staff overseas on short-term contracts for single projects, such as opening a store. Responsibilities can include setting up the store, recruiting and training staff. 

Once operations are running smoothly, the expatriate employee can leave.

Structure and dollar value of packages for short-term postings are different. They may have fewer benefits, but more help with home flights and regular leave to spend time with family. 

“More companies move employees on a more permanent basis, and also on a much shorter basis, such as less than 12 months, in comparison to a few years ago,” Quane says. 

Countries where gross expatriate salary packages, as well as net cash salaries, are higher than Hong Kong include Japan, Australia, India and China. However, due to the low tax rate, Hong Kong staff in the SAR will end up with more cash in their pockets.  

When designing a package, ECA advises companies to weigh up the advantages of equating the salary with local employees or home pay levels, and consider what levels of benefit will incentivise talent to take up posting in the specific company at the destination. 

Mark Rawson, chief executive of The Henley Group, is familiar with executive pay in Hong Kong as he has been speaking to his largely expatriate clientele here for the past 17 years as an independent financial advisor. He says although there now is limited support upfront, executives may end up with more spendable money in the pocket.

Some of his clients recently went through the localisation process and said they found the negotiations trying. “They don’t really understand their rights in the contract,” he says. 

“The most important thing is to be clear about the contract notice period and the commitment of the employer, in case you have to leave Hong Kong. Another important point is the sickness benefits: can you support the family lifestyle if something happens to you?”

He advises employees to consider systematically and in great detail what is important for them, and go for those items when negotiating the contract, while putting less emphasis on items that are not so important. 

“Negotiate the benefits where they are important for you,” Rawson says, giving medical insurance as an example. If you stay in Hong Kong, local insurance will do, he says. If you are likely to leave soon, you should negotiate an international insurance plan that is transportable.

The new trend of localisation is a result of a mindset change in companies that want continuity in their business. This trend is supported by the large number of interested and willing candidates attracted by the relatively advantageous salary levels in Hong Kong and in Asia, good career advancement opportunities and the desirability of living overseas. 

As a result, it is likely that the near future will bring salaries of locals and overseas staff even closer.

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