Japan is the most expensive location in the region for expatriate packages, according to ECA International, the world’s leading provider of knowledge, information and technology for the management and assignment of employees around the world. ECA International’s latest MyExpatriate Market Pay Survey shows that the value of the overall package for expatriate middle managers in Japan is approximately US$379,000 per year on average.
“An expatriate package usually consists of a cash salary; benefits – such as accommodation, international schools, utilities or cars – and tax,” said Lee Quane, Regional director – Asia, ECA International. “All three components need to be added to get an accurate idea of the overall cost to companies of providing this package. For example, depending on how the package is put together, the cost of providing benefits such as housing can be considerable, often more than the cash salary element. The high living costs and tax levels in Japan contribute to pushing up the cost to companies of sending employees there.”
Australia is in 2nd place, followed by India.
“Many will be surprised that India, one of the cheapest locations in the region in terms of everyday costs, is also the region’s third most expensive market in terms of the expatriate packages provided by companies,” said Quane. “This really underlines the point that the cost of living allowance is a relatively small part of the overall package. In India, half of the total expatriate package is consumed by tax. If only the cash salary and benefits were taken into account, India would fall from the third to the 11th most expensive location in the region.”
The value of the overall package for expatriate middle managers in India is approximately US$298,000 per year.
The cost of sending employees into countries seen as more affordable can be higher than expected for other reasons too. Often, greater incentives are needed to attract talent to less developed locations. These include higher allowances to compensate for adjusting to life in places where the infrastructure and amenities may be of a lower standard than the employee is used to.
China ranks 4th highest in the region for total expat packages, overtaking Hong Kong in 5th and still ahead of Singapore in 6th place.
“The value of the benefits element of expatriate packages has increased throughout China over the past year,” said Quane. “This has pushed up the cost of employing an expatriate middle manager in a major Chinese city to slightly above what it costs to do so in Hong Kong.”
While cash salaries tend to be similar in tier-1 cities such as Beijing or Shanghai and tier-2 cities such as Chongqing or Xiamen, the same is not true of benefits. Although the cost of providing these is increasing faster in second-tier locations, there is still a significant discrepancy between the benefits received by expatriates in tier-1 cities compared to those in tier-2 locations. This means that the cost of posting employees to second-tier cities is significantly lower: if only these cities were included, China would rank 14th in the region rather than 4th.
Pay packages for staff who are being relocated can be designed in a variety of ways. A growing number of companies operating in the major Asian hubs such as Hong Kong and Singapore are opting to pay expatriates based on the same pay system as local staff – particularly when relocating more junior staff. However, the most common approach when determining compensation levels for executive level staff mobilised around the world, both in Asia and globally, is still to use the employee’s salary in their home country as the starting point, then adjust for cost of living, any allowances provided by the employer, and tax.
“What we see among those companies that base expatriate salaries on local market terms rather than home pay levels is that although they may still provide benefits beyond what a local national would receive, such as assistance with children’s education costs, they are nevertheless more likely to offer a leaner benefits package overall. There are a number of reasons for this but the main driver of this trend is the employment of expatriate staff on a permanent ‘one way’ basis rather than on a fixed length assignment.”
Companies’ decisions on whether or not to provide such add-ons can trigger debate about equity especially if the company manages assignees in many different markets, as is increasingly common. In designing expatriate remuneration policies, companies need to take into account whether equity with the expatriate’s home or host country peers is more desirable; salary levels and typical benefits in both the home and host locations; and how generous the business needs to be in order to incentivise talent to accept an international posting in the context of their particular company and industry.
Within the region, some of the lowest expatriate salary packages are provided in Malaysia.
Impact of exchange rates
Although expatriate packages are still highest in Japan – and approximately 11 percent higher than last year in local currency terms – the depreciation of the yen over the same period means that expat packages now cost 10% less than last year in US dollar terms.
“The currency in which an expatriate package is delivered can have a big impact on overall costs to a company,” said Quane. “Depending on the pay method used and administrative considerations, a company may decide to split pay between the expatriate’s home and host currency, or choose to pay the whole package in just one currency. If a company decides to adopt the one-currency approach, it will need to do its homework and design a policy that can withstand exchange rate fluctuations, or else its employee’s spending power may be adversely affected either in the home or the host country, depending on which currency is selected. This might cause them to reconsider the assignment.”
ECA’s MyExpatriate Market Pay Survey
ECA’s MyExpatriate Market Pay Survey looks at pay levels for expatriates around the world, including information on benefits, allowances, salary calculation methods and tax treatment.
The results, free to participants, enable companies to benchmark their expatriates’ actual salaries against the market. More than 295 companies took part in the survey covering 163 countries and over 10 000 international assignees.
Source: ECA International