UPDATED: Leverage Firms' Willingness to Negotiate, Get the Best Expat Package in Asia
Following the last two years of salary freezes and lowered bonus structures, ex-pat packages in China and Japan have become a hot topic among U.S. and U.K. attorneys looking to relocate from the U.S. and U.K. to Asia. The top firms have weathered the economic crisis just fine according to data gathered by ALB Legal News, and most firms continue to offer competitive packages in Asia in order to attract and retain top legal talent. This is especially true of firms that, as newcomers to a given market, are anxious to increase their ranks.
Firms remain committed to the region, investing resources into their foreign offices, hiring or promoting partners, and offering competitive remuneration packages to their strongest attorneys, especially bilingual ones. While ex-pat packages have for the most part remained stable at top firms, especially in more mature legal markets like Tokyo and Hong Kong, we have seen more variance than ever over the past year. Increasingly there is a willingness to negotiate and make offers on a case-by-case basis.
Historically, law firms in Asia have been reluctant to release salary and benefit information and frequently approach Cypress to conduct market research. This secrecy has risen to an all time high as firms try to gain a competitive advantage in this challenging economic environment. While firms are still lowering their numbers and cutting extra perks such as club memberships and school tuition, we’ve discovered that ex-pat packages are no longer consistent from firm to firm or even from position to position within the same firm. Some firms, especially newer firms to the market, have even increased their packages to lure attorneys from their more established competitors. When comprising an offer, law firms consider several factors such as cost of living, hardship associated with living in particular locations, familial status, competition/supply of appropriate candidates with a particular skill set, the firm’s interest level in a candidate, profitability of the office, the firm’s ability to attract and retain top talent, etc.
What does this mean for an attorney trying to make a lateral move? Be careful and use an experienced and knowledgeable recruiter who can provide you with current remuneration information and negotiate on your behalf. Make sure that the recruiter has experience in the market, and is dedicated to the market.
The basic components of a remuneration package as well as U.S. tax ramifications are discussed in this article. If you have any questions about remuneration in Asia, or would like to speak with an experienced recruiter, please feel free to contact our New York office at +1.212.979.5900 or email me directly at firstname.lastname@example.org.
Ex-pat Package Must-Haves Base salary: With the exception of a few west coast firms, the base salary for U.S. qualified attorneys will generally follow that of a firm’s head office, provided the candidate qualifies as a full associate (see below for information regarding “foreign or special associates”). For U.K. qualified attorneys, base salary typically follows the salaries of the firm’s London office, but a handful of magic circle firms are now matching U.S. salaries for U.S. JDs. While we did see hiring freezes enacted throughout 2009, though many were simply ignored by foreign offices, for the most part they are over, and most if not all of the salary freezes enacted in 2008 and 2009 will be repealed this year. Several firms have even revamped their benefit packages to compensate for the stagnation in salary in order to remain competitive in the market.
Performance and Hour-Based Bonus: Most firms offer discretionary bonuses that will follow those given to attorneys at the firm’s head office. Depending on the firm, any performance bonuses may be pro-rated, and this is typically based on the candidate’s start date and marketability as well as the firm’s profitability in that fiscal year. As we all know, bonuses were significantly leaner this last year with many firms not offering a bonus at all…. Unfortunately, this extended to the Asian and Middle East offices of most U.S. and U.K. firms.
Tax Consequences: U.S. citizens and permanent residents (green card holders) must pay U.S. income tax, in addition to any income taxes due to the host country. However, there is relief - a portion of your salary will be excluded from your U.S. income tax liability, regardless of location.
In 2009, the first $91,400 was exempt, and this year the first $91,500 will be exempt. Housing allowance exclusions vary according to country (i.e. in Hong Kong, your housing payments are deductible up to 50% of your taxable income). Due to double taxation on sums above the exemption, most international firms have implemented a tax equalization plan as part of a remuneration package, which can offset the expatriate’s tax burden and sometimes undermine a tax benefit to associates in certain markets. Tax equalization plans are designed to make taxes a neutral factor in an expatriate’s compensation package. The theory is that all U.S. expatriates should continue to incur a tax burden equal to the one they’d incur if they were living in the United States regardless of actual tax liabilities under local conditions.
A U.S. taxpayer may also exclude a certain amount of his or her foreign housing expense that is the excess of the taxpayer’s reasonable “foreign housing expense” for the tax year over a “base housing amount” equal to 16% of the maximum foreign earned income exclusion amount for the calendar year, multiplied by the number of days of foreign residence or presence by the taxpayer for the year. However, foreign housing expenses may be excluded only to the extent of the lesser of: (i) the expense attributable to the law firm provided amount; or (ii) the taxpayer’s foreign earned income for the taxable year.
Expatriate benefits: Firms also generally offer a range of benefits for foreign nationals working in Asia. A variety of factors influences the package that is offered, including cost of living, profitability of the office, the firm’s competitiveness in the legal market, an attorney’s nationality and academic pedigree, and whether a firm considers the location to be a hardship destination.
Benefits can include the following:
Housing allowance and/or offset: Funds to cover the cost of housing in the host city. Of course, the level of this allowance largely depends on the cost of living in a given location and familial status, and a given firm’s willingness to pay a housing benefit.
Cost of living adjustments (COLA): Expatriates in locations with a high cost of living, such as Tokyo and Hong Kong, will also often be offered a set amount to offset these higher costs.
Home leave: Many firms will give an expatriate attorney a set amount to cover travel to his or her home country (usually twice a year), as well as a set amount of holiday time for a home visit.
School tuition: Attorneys with school-aged children may be offered funds to cover private school expenses for their children. Firms are less inclined offer school tuition for dependants in the current market.
Most firms pay for tax preparation.
Hardship Allowance: While typically offered for all onshore locations, in 2009 this was limited to Beijing assignments only.
Relocation expense reimbursement: Most if not all firms offer to cover the costs of a candidate’s relocation to the host city, including airfare, relocation allowance, shipment of household goods AND temporary housing provided while the candidate secures housing. More recently, airfare as been downgraded by most firms to economy class travel whereas many associates were flying business class in 2007 and 2008.
Signing bonus: Believe it or not, we negotiated several signing bonuses in 2008 and 2009. More recent bonuses have been limited to truly exceptional candidates or unique situations in which a pay differential needed to be compensated for. Just this week we negotiated a $25K signing bonus for a candidate relocating from the US to Hong Kong. In the good old days, several firms offered prestigious club memberships to senior associates and partners, but we have yet to see this in 2010.
Packages in Hong Kong have remained significant since their sharp increase in 2007 and 2008. While some firms no longer offer ex-pat packages, the vast majority still do, and you can expect between $30K USD and $70K USD.
Given the extremely high cost of housing in Hong Kong, residential allowances remain high in Hong Kong and range from $5-6K USD per month. However, by Hong Kong government regulations, housing allowances are capped at a certain percentage of salary.
Mandatory Provident Fund (MPF): One special factor in Hong Kong remuneration packages is the territory’s Mandatory Provident Fund. The MPF is a basic retirement fund scheme, and every person who works in Hong Kong is required to contribute to their fund. Employers will deduct MPF contributions from a person’s pay, and most firms make matching contributions to the individual’s fund. According to Hong Kong’s regulatory scheme, the minimum contribution for both individuals and firms is 5% of salary, or 5% of HK20,000 (US$2,564), whichever is less.
Mainland China (Beijing and Shanghai)
General considerations: Remuneration depends largely on whether the candidate is qualified in the U.S., U.K., or China as well as the attorney’s law degree, i.e. U.S. LL.M. versus U.S. JD. Generally speaking, for ex-pats, we have seen packages range from $30K USD to $70K USD. Taxes are higher in Shanghai and Beijing than in Hong Kong (see tax consequences above) but the cost of living is significantly lower than in Hong Kong, so expat packages are typically about 30% smaller. Several firms offer a “hardship” bonus for associates practicing in Beijing, where Cypress has placed more associates than any other PRC city this year.
U.S. and U.K. nationals: U.S. and U.K. lawyers with a U.S. JD or LL.B., will start at the associate level, as they would in their home country.
PRC nationals: PRC attorneys who have a JD are usually hired as associates while those with only an LL.M. from a top U.S. law school, who are qualified to practice in New York or California, and have worked at an international law firm might be hired as “associates,” “foreign associates,” or “legal consultants,” depending on the law firm and level of experience.
Compensation for PRC nationals can vary, but they certainly receive a higher salary at a foreign firm rather than at a Chinese firm, although the pay at a U.S. or U.K. firm for PRC nationals might be far below that of expatriates. Bonuses for PRC nationals might also be lower than for expatriates, and, unless they hold a green card, they most likely will not receive an ex-pat allowance of any kind. Some firms offer travel and relocation expenses but that is becoming rare in the current market.
Social Security Fund: Expatriates in China will likely have to make some kind of contribution to a social security fund, which will be deducted from the attorney’s paycheck. These funds are administered on a municipal basis, and thus the level of contributions will vary based on locality.
There was less hiring in Tokyo in 2009, but the ex-pat packages that went out remained stronger than in any other Asian market, given the cost of living and particularly small supply of bilingual attorneys looking to practice there. The packages range from $45K-85K USD, depending on seniority, familial status and firm. In Tokyo, most U.S. and U.K. firms also offer to cover the costly venture of relocating and securing housing there, and they cover the “key money” and deposit, acting as guarantor and usually signing leases in the firm’s name.
Law firms in Singapore historically didn’t offer expat packages, given that it wasn’t considered a hardship destination and the cost of living is so moderate. But as Singapore began competing with other locations such as Hong Kong for top attorneys, firms there had to start offering certain benefits including relocation and minimum housing allowances. These benefits have waned since the market crash, but they have remained in place for several top firms, which offer between $20-45K USD generally.
In the End…
Remuneration packages for attorney postings in Asia can differ considerably, based on the candidate’s credentials, the firm’s policies, and the location. Lawyers looking at relocation to Asia should study their situations and available opportunities, and carefully analyze how the different remuneration components might be assembled into the most attractive package for them. As remuneration issues are sensitive and challenging to manage, it is critical to have a knowledgeable and strong advocate to help you negotiate the right deal. With an expert partner like Cypress Recruiting at your side, you are much more likely to reap substantial benefits as you pursue an Asia posting.
Joshua Flagg is the managing director of Cypress Recruiting Group. He graduated from Fordham University in 1998 where he received a B.A. in Liberal Studies and studied the Mandarin language. Mr. Flagg has traveled extensively throughout Asia and lived in India before joining Cypress.