German Chamber of Commerce, Beijing January 21, 2009...

Managing China’s Expatriate, Returnee and Local Hire Rewards Landscape

German Chamber of Commerce, Beijing January 21, 2009

2

Largest C&B Database in China

85 90109

130142

122139

2001 2002 2003 2004 2005 2006 2007 2008

TCM™ Participants for Expatriate C&B Study(2001-2008)

•448 Expatriate Positions / 2,800 Expatriate Incumbent Data•Assignee: Western, Hong Kong/Singapore, Taiwan, Other Asian

•Local Hires: China Hired foreigner, Returnee

170

3

Agenda

Living in China during the Downturn

Why Expatriates?

Expatriate Demographics & Expatriate Cash

Expatriate Benefits

Localization & Globalization

Q&A

Living in China

5

81.2

81.8

82.2

84.9

92.8

94.4

100.0

102.6

105.2

112.3

120.2

Index(New York = 100)

6765

61

49

38

37

35

31

24

23

21

Rank

ShanghaiBeijing

Bangkok

Taipei

Singapore

Moscow

Hong Kong

Seoul

Toronto

Rome

Los Angeles

Cities

43.2Milan20

43.4Chicago18

47.2Sydney17

56.4Munich15

70.5Paris10

71.2Tokyo8

72.3New York5

76.0Copenhagen4

80.4Dublin3

80.5Oslo2

80.8London1

Index(New York = 100)CitiesRank

Source: UBS Survey, March 2008Methodology The cost of a weighted shopping basket geared to Western European consumer habits containing 122 goods and services including rent.

Cost of Living Around the World

Survive In the Downturn

7

It’s a Global Downturn with Local Responses

Hiring FreezeExecutive Salary Reduction

LayoffsSpecial Communication

Strategic Hiring

No Special PlansAdditional Learning & Development

Split Merit PoolSeparate Discretionary Incentive

Stock AwardRetention Bonus

63%5%

31%49%50%

7%61%66%22%14%25%

28%11%17%71%76%

0%59%53%35%35%18%

WHAT Actions Are You Taking?

Treatment of Highest Performers

China India46%4%

20%64%58%

9%56%61%33%26%26%

Other Asia

Source: Hewitt Survey—Impact of Economic Conditions on 2008/2009 Compensation Spending

8

Fill expatriate roles that are absolutely critical to the business

Put expatriate assignments on hold and delay them until the economy swings up again

Headquarters are reviewing their expatriate policies back home and trying to find out where costs can be saved

Expatriates continue to be sent to China, but on less attractive packages that are being “trimmed.” Offer retention bonus for specified period of employment

Companies will refrain from trying to reduce salaries or cut housing budgets purely because of the economic downturn

Other strategies may include sending over expatriates that are single or without several children, which will inevitably run up expatriate package tabs

Comments from HRDs

HR's Reaction - to the Global Economic Situation

The Changing Value Proposition of Expatriates

10

Why are Expatriates Still Needed?

56% of companies will increase their expatriate headcount in 2009, however with the downturn, this will vary by industry.

Compared with 2007, business expansion is still the most important reason for expatriate headcount increase and even has an increase in proportion.

For those companies who choose to decrease expatriate population, more companies have stabilized their business and tend to cut down their cost for expatriate employees.

33.3%

55.6%

27.8%

5.9%

82.4%

4.4%

45.6%

47.1%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Business stabilization

Localization of expatriate positions

Cost reduction

Career Development

Business expansion in China

Asia Pacific Headquarter Shift to China

Shortage of local high-caliber managerial staff

Shortage of local technical expert

11

Business Focus Varies at Different Business Stages

Business Model Selection

Partner Management

Risk Management

Systems and Infrastructure

Company Culture & Values

Talent Attraction

Talent Selection & Staffing

Employee Learning & Development

Revenue Growth

Speed to Market

Business Expansion(Product, Geography, Channel, Customer)

Quality Products/Services

Knowledge Transfer(Technical/Business)

Employee Learning & Development

Talent Motivation & Retention

Profitable/Sustainable Growth

Business Model Refinement

Geographical Expansion

M&A

Product Diversification

Execution Excellence

Return on Investment

Innovation

Learning & Development

Driving High Performance(Talent Motivation & Retention)

Development Stage Growth Stage Mature Stage

Set up the Business Grow the Business Optimize Business Profit

12

Value Propositions to Bring

Translate Corporate Mission

to China

Ensure Growth Happens In the Right Place at the Right Time

Ensure Business/Technical Knowledge/Skills

Transfer Takes Place

Enable Company to Achieve New Growth/

Better Profit/Better ROI


The New Entrant The Growing Business The ‘Old China Hand’

Typical Roles

Chief RepresentativeGeneral Manager

Typical Roles

Business Unit LeadMission-Critical Function Lead

Typical Roles

R&D / Technical Expert

Expatriate Demographics and Key Cash Findings

14

Expatriate Cash Categories

“Other Asian” Assignee

Executives form other Asian economies (India, Malaysia etc).

Hong Kong & Singapore Assignee

Hong Kong , Singapore executives

Hired LocallyReturnee

Chinese nationals with above 3 years’overseas working experiences who have

returned to work in China

China-hired Foreigner

Foreign nationals who were hired in China

Taiwanese Assignee

Taiwanese executives

Western Assignee

“Traditional” category of expatriates, generally nationals from western economies, typically

already working with the company and transferred to China

Assignee

15

The Evolving Expatriate Landscape over Time

Western

HK/Singapore

TaiwanOther Asian

China Hire

Returnee

0.0%

20.0%

40.0%

60.0%

Western 30.7% 24.8% 21.4% 21.0%HK/Singapore 11.5% 12.6% 19.9% 12.0%Taiwan 5.8% 4.3% 4.8% 3.0%Other Asian 15.6% 10.0% 6.9% 6.3%China Hire 27.0% 40.2% 41.3% 50.5%Returnee 9.4% 8.1% 5.6% 7.2%

Year 2005 Year 2006 Year 2007 Year 2008

% = Headcount by Each Expatriate Category / Total Expatriate Headcount (Assignees + China Hire + Returnee)

Data Source: Hewitt 2008 Expatriate C&B Study

16

Expatriate Distribution – By Level & Category

0%

20%

40%

60%

80%

100%

Western 13.6% 10.6% 14.4% 19.6% 34.3% 41.1% 21.0%HK / Singapore 8.2% 8.4% 9.5% 14.7% 13.4% 18.0% 12.0%Taiwan 1.0% 1.2% 3.0% 2.8% 4.1% 5.0% 3.0%Other Asian 4.1% 3.5% 7.2% 7.2% 6.2% 5.5% 6.3%China Hire 58.8% 68.0% 59.8% 47.2% 36.7% 24.1% 50.5%Returnee 14.3% 8.3% 6.1% 8.4% 5.3% 6.4% 7.2%

ProfessionalSr.

Professional/ Supervisor

MiddleManagement

Sr.Management Director Top

Executive Overall

% = Headcount by Category & Level / Total Expatriate Headcount in that Level


17

Expatriate Employment Trend in Most Emerging Markets Typically Resembles the Chart Below

Expats Expats Expats

Locals Locals Locals

Non-Manufacturing (e.g. R&D, Service)

Manufacturing

Expatriate trend line


18

2008 Expatriate Turnover by Level

2008 Turnover Rate

6.7%5.5%

3.2%

10.3%

13.5%12.2%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

Assignee China Hire & Returnee

Voluntary Turnover Involuntary Turnover 2008 Overall


19

The Gap is Narrowing with Local Increases

Y-O-Y Salary Increase - Average

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

2006 Overall 4.8% 4.8% 4.9% 5.7% 6.1% 6.6%2007 Overall 5.1% 5.3% 5.1% 5.6% 7.1% 7.3%2008 Overall 5.3% 7.0% 6.7% 5.1% 7.8% 8.4%2009 Projection 6.2% 7.7% 7.9% 6.4% 8.2% 8.4%

Western HK/Singapore Other Asian Taiwan China Hire Returnee


Note: The projection of salary increase may not hold due tothe current economic crisis. Specific impact will be understood through a separate study Hewitt plans to undertake in January.

Cash Analysis Key Findings –Target Total Cash

21

Target Total Cash - Definition

Base Salary

Variable Bonus

Premiums –COLA, Hardship etc.

Guaranteed Bonus

22

Cash Compensation Level – Target Total Cash @ Median

0

100,000

200,000

300,000

400,000

500,000

Western -- 77,188 111,283 173,575 248,317 413,743 HK&Singapore -- 59,695 97,112 157,284 239,996 357,812 Other Asian -- 54,117 77,361 146,891 208,225 -- Taiwan -- -- 73,546 130,975 195,020 -- China Hire 32,238 53,771 88,360 140,651 213,756 384,229 Returnee 26,785 54,769 76,965 122,116 187,309 309,171 Local 13,448 24,118 44,001 81,349 150,400

Professional Sr.Professional

MiddleManagement

Sr.Management Director Top Executive

Other Asian

Western

Returnee

China HireHK & Singapore

Taiwan

USD / Year

Local (Shanghai)


Hewitt 2008 Shanghai City C&B Study

23

Pay Mix – Year-on-Year Comparison

74.6%

73.1%

72.6%

73.7%

74.3%

71.9%

72.0%

71.2%

16.6%

15.9%

14.5%

14.1%

18.5%

13.6%

11.2%

10.4%

0% 20% 40% 60% 80% 100%

2008

2007

2006

2005

2004

2003

2002

2001

Target Variable Pay 16.6% 15.9% 14.5% 14.1% 18.5% 13.6% 11.2% 10.4%Expatriate Premiums 6.0% 7.6% 9.9% 9.9% 11.5% 13.0% 14.7% 16.5%Guaranteed Bonus 2.8% 3.4% 3.0% 2.2% 2.1% 1.5% 2.1% 1.9%Base Salary 74.6% 73.1% 72.6% 73.7% 74.3% 71.9% 72.0% 71.2%

2008 2007 2006 2005 2004 2003 2002 2001


Expatriate Benefits

25

Benefits Arrangement Practices

Benefits arrangement that is applied for employees hired from companies' regional headquarter, i.e. Asia-Pacific headquarters

Benefits arrangement that is applied globally, usually for expatriates hired directly from global corporate headquarters

Global

Regional

Returnee

Local-hire ForeignerBenefits arrangement

that is applied for repatriates (expatriates returning to their home country-China)

Benefits arrangement that is applied for China-hired foreigners (foreign citizens hired locally in China

26

Tax Assistance

Tax equalization is still most prevalent for global and regionalpackages

2008 Prevalence of Tax Assistance by Level

0%

20%

40%

60%

80%

100%

T D M S T D M S T D M S T D M S

Wholly born by Employee Tax equalization Tax protection Other

Global Package Regional Package China Hire Package Returnee Package


27

Prevalence of Housing Assistance



2008 Prevalence of Housing Assistance by Level

0%

20%

40%

60%

80%

100%

T D M S T D M S T D M S T D M S

Actual Reimbursement with Cap Cash Housing Allowance Other No Assistance Provided

28

Company Car Assistance

2008 Prevalence of Company Car Assistance

50%

65%

81%88%

44%

64%

69%86%

13%

31%

52%63%

27%27%

47%

0%

20%

40%

60%

80%

100%


Top Executive Director Manager Specialist

Companies purchase or rent cars for expatriates typically based on position levels

At least half of directors and managers under Global and Regional packages enjoy this benefit

Majority of China-hired foreigners and PRC Returnees at top executive level have company cars.


29

Children’s Education

2008 Prevalence of Children's Education by Level

33.3%

88.9%

27.8%

94.7%89.5%

54.5%

91.9%

53.5%

31.3%

89.7%74.2%

34.0%

83.3%

68.8%

25.0%

10.0%

0%

20%

40%

60%

80%

100%

Global Package Regional Package China Hire Package Returnee PackageT D M S

Prevalence is similar to last year, however companies are placing more limitations on this benefit for China hires

Majority of companies provide budgets similar to China’s international school rates. Budgets usually cover application, tuition, and shuttle bus fees.

Budgets are higher than in 2007 due to USD depreciation


30

Supplemental Insurance Benefits

2008 Prevalence of Supplemental Insurance Benefits

0%

20%

40%

60%

80%

100%

Medical Dental Vision Life AccidentalDeath &

Disability (AD&D)

Travel DisabilityIncome

Global Regional China Hire Returnee

Expatriates are all well taken care of by their employer with a complete insurance programs, including Medical, Life and AD&D.

For China hires and returnees, there is a relatively lower prevalence with the same benefit items, especially regarding dental and vision


Localization & Globalization

32

Localization Market Trends

No ChangeNo ChangeNo ChangeNo ChangeNo ChangeTransportation Assistance

No ChangeNo ChangeNo ChangeNo ChangeNo ChangeHealth Care Plan

Eliminate Immediately




Eliminate ImmediatelyHome Leave

Follow local planFollow local planChange to local plan

Change to local plan

Change to local PlanAnnual Leave

Change to local plan

Change to local planPhase outPhase outDecreaseHousing Assistance

Basic Benefits

No ChangeNo ChangeNo ChangeNo ChangeNo ChangeVariable Pay






Premiums(COLA, Hardship etc.)

Change to Local Plan

Change to Local PlanNo ChangeNo ChangeNo ChangeBase Salary

Cash CompensationReturneeChina HireTaiwanHong KongGlobal

Local HiresAssignees

This data represents the 43.1% of companies that have implemented or plan to implement this year.


33

Localization Market Trends





Eliminate ImmediatelyR&R Leave





Eliminate ImmediatelySpousal Assistance

No ChangeNo ChangeNo ChangeNo ChangeNo ChangeRetirement Plan

Not providedProvided to top executivesNo ChangeNo ChangeNo ChangeChildren Education

Not providedNot providedNo ChangeNo ChangeNo ChangeTax Assistance

No ChangeNo ChangeNo ChangeNo ChangeNo ChangeClub Membership

Premium Benefits

ReturneeChina HireTaiwanHong KongGlobal

Local HiresAssignees

This data represents the 43.1% of companies that have implemented or plan to implement this year.


In Closing

35

The Future of Expatriates in China

Performance

Global headquarters are putting more pressure on the their developing markets like China to produce more with less – expatriates are feeling the pressure on performance

China Hire

China-hired foreigners begin to have a much higher presence at the topexecutive and director level positions

Package Localization

More foreigners want to stay in China and are willing to stay in China with slightly “less attractive” packages than before

Companies are investing more in cash, less on benefits packages – in summary, the total rewards package cost to the employer is decreasing overall

As companies face expatriate resistance to localization, more companies are getting creative and considering a flexible benefits approach

Thank you!

Beijing: [email protected]

German Chamber of Commerce, Beijing January 21, 2009...

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