Are expat packages and expatriate salaries in Hong Kong a thing of the past?
19 July 2015
It’s often thought that an expat is someone living on a generous company package with a driver, gardener, and nanny. The situation has been changing over the past decade or so, with more and more expats now employed on local contracts. We take an honest look at real life for Asia’s new expats who don’t receive the big packages, and debunks the myth that all expats are living it large in Asia.
Twenty years ago, being an expat was seen as a quick way to get rich fast, with most employees receiving full compensation and benefits packages that covered everything from housing, schools, and cars, to tax equalisation, home leave, and even cold-weather clothing allowances. While some expats are still fortunate to be living on full packages, most of us don’t.
Industry research shows that “localising” expatriates has been the dominant compensation approach in Singapore, Hong Kong and Shanghai since 2004, in contrast to the predominantly full-package approach of 20 years ago. Localisation describes the company practice of replacing an expat compensation package with something comparable to that offered to locals. It includes reducing (or eliminating altogether) base salary, incentives, allowances, social security and retirement plans. Localised expats are viewed and treated like local employees and offered few or no special benefits in recognition of their “special” status as foreigners.
This change means that more expat families are relocating to Hong Kong, or remaining here, on local terms and conditions, and forgoing many of the benefits and allowances they once might have received.
Why do expats agree to localise?
For many, it’s a deliberate decision taken in the best interests of the family, especially when faced with a company policy that requires the localisation of an expat who wishes to stay on in Hong Kong at the end of an assignment contract. KPMG’s 2013 Global Assignment Policies and Practices Report estimates that approximately 30 percent of companies have such policies.
Localisation often makes sense for families who appreciate Asia as a safe environment to raise children, and a convenient base for expats in a regional role requiring constant business travel. Others have no choice. As the international labour market hots up, and the need for international work experience becomes essential for “lifetime employability” and “external marketability”, many expats and their families are here on local terms because one or both spouses need Asia on their CV.
Whatever the reasons, localised expats live a different life to their full-package peers. For starters, they fund everything out of their own pockets: school fees, rent, car, utilities, and trips home to see family and friends. This often means forgoing the luxuries other expats may easily afford, including expensive restaurants, flashy holidays, and even drycleaning and imported groceries. Their savings may take a dip, their children may attend local schools, or they may decide to rent a more affordable home further from the city. Many localised families also have two parents working in paid employment, often more out of necessity than desire.
The norm rather than the exception
Not surprisingly, more than three-quarters of companies globally (including those with Hong Kong subsidiary offices) have some form of localisation policy. In 2014, more than half were transferring employees to localised conditions, up from 46 percent in 2013, according to a study of mobility trends by Brookfield Global Relocation Services. The main driver is the need to reduce expenses for international assignments in response to difficult economic conditions.
But this doesn’t mean that all expats go willingly into localisation, or that companies necessarily reap the benefits. A recent study published in Journal of World Business found that localisation has many unforeseen opportunity costs for companies, the biggest being the loss of talent to competitors. Localised expats are free to job-hop and look for better employment deals, because of reduced financial ties binding them to their employers.
To counter the avalanche of lost talent and employee resistance to localisation, about 27 per cent of companies use “local-plus” packages over a transfer period of up to two years. This softens the blow of localisation, giving expats time to manage their finances and adjust their spending habits.
Companies are also savvy in knowing whom they can localise. Typically, younger employees climbing the corporate ladder need less enticement than senior employees in their late 40s and early 50s who are more likely to be drawn to a large package with benefits.
International HR Journal defines a local-plus package as one that compensates an employee according to the salary levels, structure and administrative guidelines of the host location, as well as providing them with limited “expatriate-type” benefits such as transportation, housing and dependants’ education, in recognition of the employee’s “foreign” status.
What to consider
1. Localisation is viewed as a permanent one-way transfer, where the company has no obligation to provide or to assist with repatriation to a home country or to re-assign an expat to another international location. It is entirely the employee’s responsibility to organise and fund any such move.
2. Localisation means that expats are not supported or valued by a company in the same way as full-package expats, typically receiving no training and fewer perks, and having a lower status overall. This can leave an expat feeling in limbo, neither a true local nor a real expat. A hierarchical pecking order tends to exist too, and many localised expats feel like lower-order employees, especially in cases where their expat colleagues are more handsomely rewarded for doing exactly the same job.
3. Localisation occurs in two ways. An increasing number of expats relocate as localised employees from the start, with just a base salary and no perks or benefits. Others arrive on a full package and later switch to localised employment. Some companies do this by winding back benefits incrementally over a one- or two-year period as outlined in the employment contract, but the majority of companies tend to localise almost immediately, giving their expat employees little time to plan and budget ahead.
The big picture
An obvious downside of localisation is the negative impact on the household budget. Conversely, many localised expats love this way of life. The biggest benefit is the freedom to own their careers, to relocate when it suits them rather than the company, to job-hop into better opportunities at will, and to decide when and how to spend their salary.
Either way, it’s clear that localisation is here to stay. It helps companies maximise talent management while containing costs – a strategy that is likely to dominate the expat employment scene for years to come. What remains important for expats is to leverage the opportunities that localised employment brings, and to keep in mind that short-term financial pain can often bring long-term international career gain.
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