Why Are Expat Relocation Packages Being Downsized In Hong Kong?

The Pearl of the Orient, Hong Kong, is one of the most interesting places in Asia to live and work in. This country has a lot to offer in terms of cultural experiences, infrastructure, diversity, quality of life, safety, education and career opportunities, to name just a few.

The best part is that it offers the 4th highest expatriate compensation packages in the Asia-Pacific region.The only countries that can do better are Japan, China (Shanghai and Beijing) and Singapore. This is one of the main reasons why expat managers at various levels from all over the world are packing their bags and moving to Hong Kong with their families.

Typically, a professional from the US, UK, Canada or Australia at middle management level is likely to make around HK $ 2,070,000 (US $ 266,836; £ 201,759; € 238,790) per annum, plus the usual expat benefits, like accommodation, a car, domestic help and children’s school fees. Usually, an organization is also obligated to pay the repatriation expenses for an expat and their family after a period of around two years.

While the salary offered to expat professionals in Hong Kong is not much higher than what they would make back home or in another country, the main attraction for most managers is the benefits they receive. Since housing allowances are very high, they can afford to stay in a better property than they would be able to afford on their own in their home countries. Moreover, expats find that their children will be able to attend top international schools, since the company typically pays for children’s education. These factors contribute to the experience of a better quality of life in Hong Kong for expat managers.

However, in the last two years, things have undergone a rather drastic change in this country, which is evident in the fact that the expat pay package has actually dropped by 2% since 2015, rather than going up.

Expat Packages in Hong Kong

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Not too long ago, professionals at upper management levels from the western world were offered excellent relocation packages when they took up long-term assignments, contracts or even job opportunities in Hong Kong. In addition to their salaries, they often received a housing allowance of up to HK $ 300,000 (US $ 38,672; £ 29,240; € 34,607) per month on a “use it or lose it” basis. This is a very high amount even going by expat accommodation standards in the US or the UK. You could easily rent out a furnished 4,000 square foot house with amenities such as a marble jacuzzi, a private garden and a spectacular view, in one of the prime locations of Hong Kong for that much money. It was therefore hardly surprising to see several banking and finance professionals from Europe and North America heading towards Asia.

However, the term “use it or lose it” means that the companies could pay the rent for up to that amount, but could not offer the same sum to their employees in cash. Many professionals splurged on their living quarters simply because they were not given any other alternative.

Unfortunately, this trend seems to have become a thing of the past. Some of the top players in the country’s banking and finance sectors are still offering expat managers a relocation package, but these are not as high as they used to be. In recent times, a majority of them have also done away with company-paid leases completely. Instead, they are increasing the overall salaries of their managers so that the employee can pay for their own accommodation and other expenses.

In the current scenario, expat professionals who are working in top management positions pay anywhere between HK $ 80,000 (US $ 10,313; £ 7,798; € 9,230) and HK $ 100,000 (US $ 12,890; £ 9,747; € 11,535) per month on their rent. Of course, this is also a very high amount compared to real estate rental costs in the US and even the UK. However, in Hong Kong, you can get just a compact 2-bedroom apartment in a building with all the required amenities at a fairly good location. Those who live alone generally opt for a small, 1-bedroom apartment at a decent area, in the price range of around HK $ 35,000 (US $ 4,512; £ 3,411; € 4,038) a month.

While this significant cut in your relocation package can be quite a humbling experience, it is way better than actually losing your job. Some of the top banks in the country have eliminated hundreds of positions and have let many of their employees, including expats, go. The number of expatriates moving to Hong Kong has also reduced by half in the last few years, taking into account all the commercial sectors. Those who have taken up offers since 2012 have received lower packages.

Localizing Expatriates

Industry research shows that since 2004, “localizing” expat compensation has been a highly dominant approach all throughout Southeast Asia, especially in countries like Hong Kong, China and Singapore. This is to help the local workforce see that outsiders aren’t unfairly getting paid a lot more than they are and that they have no special privileges.

Apart from housing allowances, many foreigners have therefore seen significant cuts in their base salaries, incentives, social security, retirement plans and other allowances. This means that many expat families actually have to forgo some of the benefits that they once received.

However, almost all organizations are responsible for the paperwork and the documentation expenses incurred when they hire a foreigner. Depending on your agreement with your company, they may also have to pay the immigration expenses for your spouse and children.

Of course, as a professional expat, it is completely up to you whether or not to accept a cut in your package. Some agree, keeping in mind the best interests of their family, as they are not keen on uprooting their children within a short span of time. Others may be more interested in getting substantial Asian experience on their resumes.

Things to Consider about Localizing

Before you decide to accept your company’s plan to localize you, there are a few things you should keep in mind:

1. Look at this move as a permanent one-way transfer, where your firm is under no obligation to assist you and your family with repatriation to your home country. They may not even re-assign you to another international location (unless it is stated in your contract). In most other places, these moves are usually organized and funded entirely by the companies.
2. Unfortunately, if your employer decides to place you on a localized package it could be an indication that they don’t value you as much as their full-package expats. In addition to fewer perks and lack of training, it could mean a reduction in your overall status within the firm. Hierarchical orders definitely exist in the Asian business society and this may cause you to feel like a slightly low-order employee, as compared to your colleagues from your home country.
3. Being on a localized package makes most people feel in limbo; as if they are neither locals, nor real expatriates.

There are two ways in which localization can occur. The first is when an expatriate agrees to relocate to Hong Kong for a lower base salary and no perks or benefits right from the start. In the second case, a foreigner arrives into this country on a full expatriate package but is later asked to switch over to a localized plan.

Some companies don’t really reduce the package but wind back the benefits that are incremental over a period of one or two years, as outlined in the contract.

Unfortunately, the strategy of most organizations is to localize almost immediately, which gives the employee little or no time to plan ahead.

Localizing Impact on Organizations & Expats

More than 75% of the global organizations, including those with subsidiary offices in Hong Kong, have implemented at least some policy related to localization. In the year 2014, over 50% of the companies transferred their expat workforce to localized conditions. This was only slightly higher than the 46% of the firms that did so in 2013. Of course, the main objective of this move is to reduce the company’s expenses in difficult economic conditions, without any impact to the work.

Of course, not all expats readily accept localized conditions and not all organizations reap the benefits of this strategy. A study published in the Journal World of Business showed that localization results in several unforeseen opportunity costs for companies, the biggest challenge being loss of talent to competitors. A localized expat is free to (and in fact more likely to) look for better employment deals and make the switch since there are fewer financial ties binding them to their employers.

Not every expat manager is put on a localized compensation plan. Organizations carefully look at which employees they can localize without losing them. Trends show that younger employees on their way up the corporate ladder are more likely to stay if they see an opportunity, which is more important to them than their salary. On the other hand, senior managers in their 40s and 50s are more interested in larger packages with benefits.

One of the most obvious downsides of localization on the employee is the reduction in the household budget. After all, Hong Kong is ranked as the 3rd most expensive place in Asia (after Tokyo and Seoul) in terms of food, accommodation, utilities and schooling.

Many of the younger, single localized expats are fine with this way of life. To them, short term financial loss will bring about a long term international career boost. Unfortunately, it is those employees with families in Hong Kong that are most adversely affected. For example, many expat children have had to move from international schools to private or even public schooling within the country because of this move.

The Local “Plus” Package

To counter the adverse impact of reduced packages to expats and prevent loss of good employees, a small percentage (around 27%) of the firms in Hong Kong have started offering a Local Plus compensation package to their expat managers for a transfer period of up to two years. They believe that this strategy gives the employee a chance to manage their finances and make adjustments to their spending habits, thereby softening the blow.

The International HR Journal has defined the Local Plus package as an employee compensation plan that is designed according to the salary level as well as the administrative and structural guidelines of the host country. It usually offers a lower cash payout but with expat benefits like transportation, housing and children’s education, mainly to recognize the employee’s foreign status.

Summary

Looking at the trends for the last 2 to 3 years, localization is likely to continue in Hong Kong for a long time. Companies look at this strategy as a way to maximize talent and contain costs.

Do bear in mind that expats in Hong Kong enjoy an excellent lifestyle, in spite of the reduction in the budget. In fact, many of them even believe that their quality of life in this country is better than what it was back home.

Moreover, some global fashion houses and international multinational corporations based in Hong Kong are still offering their expat managers full relocation packages that include high housing allowances (in the range of HK $ 300,000), paid tuition fees for children’s education and guaranteed repatriation after a certain period (generally 2 or 3 years). Many of them also get the company to pay for the services of a driver, gardener and nanny as a part of their contract. However, such offers are now more likely to be received by those employees who are working in the non-banking sector.

Sources: [1], [2], [3]


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