While lawyers in New York and London have become used to flat bonuses and diminished economic expectations, their colleagues in Asia can still count on one particular financial sweetener: the expat package. Typified by allowances for personal housing, children's tuition and club memberships, the perk is a remnant of a time when cities like Hong Kong were considered far-flung "hardship posts."
That perception is clearly outdated. Modern Hong Kong has high-quality housing, efficient transport and a Starbucks on every corner. But for lawyers at many American firms, the expat package is alive and well. A report published by legal recruitment firm Taylor Root in June 2011 says that U.S. associates can expect a package of between $40,000 and $80,000 per year. Partners in top American firms can net up to $300,000 in expat allowances, says Carl Hopkins, a recruiter in the Hong Kong office of Major, Lindsey & Africa.
Expat packages are not unique to Hong Kong. They are also offered in other offices such as Beijing, Singapore and Tokyo. But with more than 22,000 foreign professionals admitted for employment last year according to Immigration Department figures, Hong Kong is at the center of the buzz.
William Barron, Asia managing partner of Davis Polk & Wardwell, says his firm's package for Hong Kong expat associates is "at the high end" of the bracket. But Barron adds that rumors of six-figure packages for New York–based firms are an exaggeration.
Davis Polk used to divide up associate packages into segments, using a formula that took into account factors like a lawyer's seniority, and whether he or she had children. "It just got too complicated," explains Barron. Now the associates decide how to allocate their own money. However, partners still receive a cost of living allowance and a separate housing supplement. "You can't take your housing allowance and say, 'I'm going to live above a noodle shop in [a relatively cheap district like] Wan Chai,' and pocket the rest in cash," says Barron.
Neil Torpey, the chair of Paul Hastings' Hong Kong office, says that since he arrived in Hong Kong in 2002, the overall value of such packages -- for those firms that still offer them -- has remained largely unchanged once inflation is taken into account. All that has changed is the method of delivery. "There was a tendency to sort of slice and dice," says Torpey. Lawyers would be offered a certain amount for accommodation, a certain amount for school fees, and so on. "Over time, that's been less prevalent, and has been replaced by more of a lump-sum approach," Torpey explains.
According to Torpey, U.K. firms "feel less of a need to be expansive in terms of offering anything, or how much they offer," says Torpey. That's certainly the case at one Magic Circle firm in the city. The Hong Kong human resources director for this firm says that midlevel associates transferring to the office can expect only an allowance for shipping costs, temporary accommodations for the first month, and return flights home. Again, it's a different story for partners, who might negotiate a few extra perks, says the HR director. For example, the firm may consider paying school fees for partners' children, and there are a limited number of club memberships for some partners.
The main reason for the U.S./U.K. difference: taxes. British expats only pay Hong Kong income tax. With a top bracket of just 17 percent, this is much lower than the highest rate of U.K. income tax, which is 50 percent. For Americans, it's a different story. They have to pay not only Hong Kong income tax, but also U.S. federal tax on overseas earnings over $92,900. Some may also be liable for state tax, particularly if they own property in the United States, says Christina Li, an executive director at Ernst & Young.
Because firms are well aware that British lawyers in Asia pay less tax, these attorneys shouldn't be tempted to ditch their jobs in U.K. firms for U.S. firms in hope of an American-style benefits package, warns Hopkins. "There's an element of: If you don't have it already, you're not going to get it by going elsewhere," he says.
In these days of financial gloom, some will wonder if it's still appropriate to offer an extra incentive for Hong Kong duty. The city may be cramped and polluted, but residents enjoy most all of the conveniences of the West, making the idea of a hardship payment hard to justify. "It's not like you're dodging bullets, or worrying about your house being overwhelmed by rebels in the nighttime," says Torpey.
On the other hand, he adds, there are more subtle factors at play. One is an opportunity cost: Lawyers who would long ago have bought property at home often defer doing so in Hong Kong, where real estate prices are notoriously volatile. Lawyers who are put off from buying property lose out on the potential accretion of wealth that home ownership would bestow, says Torpey.
Still, it might seem counterintuitive to lure attorneys to Hong Kong when many would come willingly. Hopkins says there is no shortage of Western lawyers who would love to pull up stakes and move to the city, drawn by anything from better market conditions to warmer weather. But many lack the necessary skills, not least a fluency in Mandarin Chinese.
In the old days, some of those lawyers would have been toasting their expat perks over a gin and tonic in the bar of one of Hong Kong's colonial-era clubs. The only club they'll be joining now is the one for lawyers who never made it out East.