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Market Updates |
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Australia
Retirement and Social
Security
Executive pay tradition in Australia
may undergo revolution. The Australian
Treasurer has announced plans recently
to curb excessive "golden handshakes"
for executives by introducing
amendments to the Corporations Act
that would give shareholders a vote on
executive termination payments that
exceed one year's base salary.
The proposal also would expand
the coverage of shareholder approval
to include all executives who are
named in the company's compensation
report. Currently, shareholder input
is required only for payments to
company directors that exceed seven
times their total annual compensation
package. Stay with us to know more
update on this.
India
Retirement and Social
Security
Options are now available for all
employees in India to secure their
post-retirement life savings with the
new pension scheme (NPS) which is
scheduled to open on May 1, 2009
and is regulated by the Pension Fund
Regulatory and Development Authority
(PFRDA) India.
In the new scheme, any individuals
aged between 18 and 55 can open a
voluntary tier II withdrawable account
at his option with a governmentapproved
point of presence (POP).
Individuals may allocate their savings
to government securities, equities and/
or corporate bonds. Participants also
may select an automatic asset allocation
based upon their age. Contributions will
receive tax-favorable treatment. |
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Japan
Retirement and Social
Security
Effective March 31, 2009,
employees in Japan are eligible for
unemployment benefits with six
months of contributions. Japan's House
of Representatives has approved a
measure that would make temporary
employees eligible for unemployment
benefits with six or more months of
employment (currently one year).
In addition, for fiscal 2009
(beginning April 1, 2009), employers
and employees would each contribute
only 0.4% of covered earnings to
employment insurance.
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Market Updates |
Malaysia
Taxation of Compensation and Benefits
Employers in Malaysia should review
how they calculate contributions to
Human Resources Development Fund
(HRDF). Between April 1, 2009 and
March 31, 2011, all employers will pay
a reduced HRDF levy of 0.5% of total
payroll. Employers with 50 or fewer
employees and paid-up capital of less
than MYR five million are exempt from
HRDF contributions for the full two year
period. Employers in government designated
ailing industries are
eligible for a six-month suspension of
contributions. The stimulus package also
contains other tax incentives for hiring
retrenched employees and individual
income tax relief for recipients of
severance payments and home buyers.
Issues for Expatriate
Employees
Employers also should pay attention
to their expatriate recruitment policy.
Effective January 21, 2009, employers
in manufacturing and services are
no longer able to recruit expatriate
employees. Exceptions will be made
for highly skilled employees. Expatriate
employees currently working in
Malaysia are allowed to remain until
the expiration of their contract or
their employment is terminated. The
government also directed employers to
dismiss foreign employees first in the
even of a workforce reduction.
Singapore
Taxation of Compensation
and Benefits
Singapore government introduces a
significant incentive for businesses to
retain existing workers in the downturn
in her 2009 budget - The Job Credit
Scheme.
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Under this new scheme,
employers will receive up to SGD900
per each eligible employee for each
payment based on the calculation on
12% cash grant of the first SGD2,500 of
the derived wage cost (12% x SGD2,500
x 3 months).
The credit would be a
temporary measure for 2009 and paid
quarterly beginning in March 2009 for
payroll as of January 1, 2009.
The budget also would give resident
individual taxpayers a 20% rebate
(capped at SGD 2,000) on the 2009
year of assessment (tax on 2008
income). The income tax on the net
annual value of residential property
would be eliminated effective 2010 year
of assessment (tax on 2009 income).
Currently, individuals who won a home
with a net annual value greater than
SGD 150,000 or a second home pay
income tax on the net annual value of
the property.
South Korea
Employment Terms and
Conditions
Effective March 22, 2009, all employers
in South Korea may not discriminate
on the basis of age for the purpose
of recruiting employees. In 2010,
protection against age discrimination
will be extended to all areas of
employment, including pay, retirement,
termination, promotion, education and
training.
Previously the law applied only to
large employers and did not specify
penalties for noncompliance.
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Non-traditional expatriates lead the pack
China has a more diverse and rich pool of expatriate talent
spurred largely by the availability of strong foreign talent
already residing in China, the increasing interest among the
Chinese residing abroad to return home, and a general in-flow
of foreign talent.
The study reveals that "traditional expatriate", or Western
expatriates, are mostly hired for the top executive and senior
manager levels, whereas "non-traditional" expatriates, such
as China-hired foreigners and returnees (who traditionally
were not a part of the foreign talent pool in the 1980s when
China opened up its economy to the outside world) form a
majority at the lower levels. (see Figure 1)
This diversity has led to multiple reward packages being
designed for different groups of expatriates. Managing
multiple reward packages of the "non-traditional" expatriate
group has led to several challenges, and organizations are
struggling to streamline this.
However, despite the effort, a variety of market practices
still exist for this group.
Hire globally and pay locally
The study reports that most organizations feel it is essential to
send over senior leaders from the country of origin to extend
the company's vision and safeguard its philosophy.
This is a big change in direction from the trend a few years
ago in which organizations actively started hiring locals in
place of the expensive expatriate talent.
Organizations have returned to recruiting expatriates
but are doing so by "localizing" the compensation packages
offered - reducing the benefits and perquisites component in
traditional expatriate packages, and hiring "non-traditional"
expatriates at lower pay packages.
According to the study, 42 percent of participating
organizations in 2007 reported having a formal localization
plan in place or planned to implement one in the upcoming year.
The talent market for "non-traditional" expatriates is fairly
new and is still evolving.
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Foreign organizations that have been in China for a long
time tend to design compensation and benefits packages
that are more aligned to local packages in terms of size and
program features. Foreign organizations that are fairly new
to China or in a rapid-growth phase still tend to bring over
expatriates from overseas, while those organizations that are
more established, coupled with steady business growth (and
across more progressive industries like hi-tech), tend to seek
more "non-traditional" expatriates.
Higher increase for global experience and local skills
Despite "localization" of compensation packages, the annual
salary increases awarded in China have been high. In
Hewitt's salary Increase survey 2006-07, the overall local
salary increase in China has been the third highest in Asia at
8.3 percent.
The China Expatriate Compensation and Benefits 2007
study further revealed that expatriate salary increases were
highest among "China returnees", who received an average
increase of 7.3 percent (see Figure 2). "China returnees"
often have strong technical skills, especially in research and
development, which, when coupled with their language and
cultural skills, make them highly valuable.
It is interesting to note that in the "China returnee" group,
employees at the senior professional, supervisor and director
levels received the highest salary increase. This is due to the
shortage of leadership and technical skills in China.
Reaping the benefits.or not?
According to the study, fewer organizations are offering
costly expatriate benefits packages as in previous years.
Traditionally, organizations in China used to award three
types of premiums to expatriates: foreign-service premiums,
hardship premiums, and cost-of-living adjustments (COLA).
COLA packages can vary, but they are offered as a fixed
percentage of base pay. COLA is the most common expatriate
premium.
In 2007, of those companies that offered premiums,
traditional expatriates hired with a global package were
offered 15.5 percent of base pay as COLA, 12.6 percent of
base pay as hardship, and 13.6 percent of base pay as a
foreign-service premium.
Expatriates on regional packages were offered 13.4
percent of base pay as COLA, 10.5 percent of base pay as
hardship and 9.0 percent of base pay as a foreign-service
premium.
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However, expatriates are not necessarily offered all three
of these amounts, as companies offered a nearly 24 percent
average aggregate premium to global packages and nearly
23.7 percent to regional packages.
Of the various types of premiums, hardship premiums
are disappearing the fastest, followed by the foreign-service
premium. China's explosive growth of suburban villas and
other high-end real estate is one reason why China can no
longer be considered a hardship posting. Adverse pollution
levels and cultural differences, however, can still justify a
need for this premium in some cases. COLAS have been
consistently maintained by organizations.
Although the prevalence of premiums has experienced little
change in global and regional packages, the value of these
premiums has reported a dip. However, China-hired foreigners
and China returnees experienced a drop in both the prevalence
and value of the total premiums offered. (see Figure 3)
Housing continues to be one of the largest components
in expatriate pay. Consistent with findings from previous
years, the majority of organizations still provide housing
assistance to expatriates. |
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However, the budget varies quite significantly. Expatriates
who enjoy global packages have the highest housing budget,
ranging from US$4,000 to $7,000 (median) per month, while
the housing budget for China-hired foreigners and China
returnees ranges from US$1,000 to $3,000 (median) per
month.
During the past few years, there has been no significant
change in housing assistance practices. However, housing
assistance is most likely to be reduced significantly if
"localization" of packages continues to become more
widespread.
Organizations will, at some point, be inclined to do
away with direct housing reimbursement and offer a fixed
housing allowance, which may well be lower than the housing
reimbursement currently offered.
Tax equalization is the most popular tax assistance
practice for expatriates who are hired by regional or global
headquarters. However, organizations do not provide tax
assistance for China-hired foreigners and China returnees.
Most organizations expect them to bear the individual income
tax themselves. (see Figure 4)
Education assistance is a very popular benefit for
expatriates assigned by global/corporate or regional/ Asia-
Pacific headquarters. This factor alone can sometimes be a
deal breaker, especially if the expatriate has a large family.
Private international education in China does not come
cheap, and can sometimes equal the tuition fees of U.S.
universities. Options for education for foreign children
are limited. Also, in most cases, the prevailing medium of
instruction is Mandarin Chinese. As a result, the majority of
organizations provide private education assistance to help
cover the tuition fees of international schools for expatriate
children across all expatriate categories. The policies are
flexible enough to accommodate different kinds of school fees,
especially tuition and transportation, as long as the costs are
within a reasonable amount. |
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While benefits such as educational assistance continue
to be offered to mostly all assigned expatriates, more than
half of the organizations surveyed said they do not offer this
to all China-hired foreigners. Only top executives within this
group are eligible to receive this. For PRC returnees, most
organizations do not include education assistance as a critical
part of the benefits package because their children are more
likely to adapt to the local education system.
Some of the benefits that are being phased out include
home leave and Rest and Relaxation (R&R) leave assistance.
Fully reimbursed R&R trips to Phuket or Bali no longer form a
part of the benefits package. R&R leave is a thing of the past,
and special home leave is less common, too; most companies
offer only standard annual leave. |
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A world of opportunity has opened up for talent in China.
Although immediate shortages of talent pose a threat,
organizations are making continuous changes in their people
processes to more effectively attract, engage, and retain
talent.
The projected economic growth is going to make
overcoming people issues even more challenging in the future
if the right steps are not immediately taken by organizations.
The changing face of expatriate pay is a testimony to
China's efforts in realigning current talent strategies. |
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Lindsay (Oliver) Klump
is a senior consultant in
Hewitt's compensation
and benefits practice in
Shanghai. To learn more
about Hewitt's upcoming
2008 expatriate, China
Hire and Returnee
Compensation and
Benefits study that was
released in November,
please contact Lindsay.
oliver@hewitt.com or
+86 21 2306 6916. |
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Hewitt Quarterly Asia Pacific
is made possible through the combined skills and experience of Hewitt consultants from across the Asia-Pacific region.
For further information please contact:
Hewitt Associates
2601-05 Shell Tower
Times Square
Causeway Bay
Hong Kong
Tel: (852) 2877-8600
Fax: (852) 2877-2701
editor-hqap@hewitt.com |
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