2010 Expatriate, Returnee and China Hired Foreigner, Compensation and Benefits Survey Result Sharing Presentation The American Chamber of Commerce in Shanghai
Agenda Study Background Growth Expatriates in Demand Expatriate Salary Findings Expatriate Benefit Findings Localization Trend Foreign Direct Hire Findings Summary Q & A Proprietary & Confidential December 7,2010 1
Study Background
Participant Demographics (156 Companies in Total) By Company Size By Industry Large Size 47% Small Size 13% Medium Size 40% Engineering 6% Pharma 8% Machinery 9% Others 17% Chemical 10% Consumer Goods & Retail 19% Auto 13% Hi-tech 18% Proprietary & Confidential December 7,2010 3
Expatriate Category Types Assignee Expatriates employed by non-china entities Western Economy Hong Kong & Singapore Taiwan Developing Economy China Hire China Hire Foreigner Expatriates employed by China entities and hired in China market Returnee Chinese employees with at least 3-year full-time overseas working experience Foreign Direct Hire Expatriates employed by China entities and hired in non-china market Proprietary & Confidential December 7,2010 4
Growth
Global companies look to China for growth Mr. Immelt said GE is in the process of hiring 1,000 sales people to boost sales in the west and north of China. 'How the Chinese economy does in the short-term is probably more important than sitting there praying for a robust recovery in the US,' he said. August 2010 Dell said Thursday it plans to open a manufacturing, sales and service center in Chengdu in 2011 that could eventually employ more than 3,000 workers. The new operations center is a response to rapid growth in business in Western China, Dell said. September 16, 2010 Citigroup Inc plans to almost triple its workforce in China by hiring up to 7,500 people in the next three years, an executive told Bloomberg in an interview published on Tuesday. August 31, 2010 Pfizer, which said today that it s looking to increase its sales force in China to 3,200 by the end of next year, up from about 2,300, January 19, 2010 PricewaterhouseCoopers LLP plans to double its headcount in China to more than 20,000 people Oct. 25 2010 Roche may have launched a cost-cutting drive in the U.S. and Europe, but it's planning a growth spurt in China. The Swiss drugmaker plans to boost its Chinese workforce by 25 percent this year. September 9, 2010 US aircraft maker Boeing plans to double the number of employees at its parts factory in northern China to keep up with renewed demand for planes, state media reported. August 25, 2010. Proprietary & Confidential December 7,2010 6
The World in 2030 GDP Forecasts by Country, US$ billion (2010 & 2030) Thousands 140 120 100 80 60 40 20 0 China India Japan Indonesia Vietnam US Germany UK France Canada BRIC G7 2010 2030 * Source: Economist Intelligence Unit Proprietary & Confidential December 7,2010 7
Leaders are needed to support this growth: What are your top key strategic business challenges over the next 3-5 years State Owned Enterprises (64) 1. Innovating developing new products or services 2. Brand building enhancement 3. Developing a leadership pipeline Private Enterprises (135) 1. Developing a leadership pipeline 2. Brand building enhancement 3. Innovating developing new products or services Foreign Enterprises (803) 1. Developing a leadership pipeline 2. Increasing domestic market share 3. Innovating developing new products or services Proprietary & Confidential December 7,2010 8
Expatriate Headcount On the Rise Expatriate Headcount Change 50% 47% 40% 36.5% 30% 20% 16.6% 10% 0% Population Increase Population Decrease No Change Increase or Decrease 1~5 Increase or Decrease 5~10 Increase or Decrease 10~20 Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 9
Expatriate Distribution by Industry 4.0% 3.5% 3.0% 2.5% 2.0% 1.8% 2.0% 1.8% 1.5% 1.0% 0.9% 0.5% 0.0% Auto HiTech Chemical Consumer Goods Expatriate % = Headcount by Each Expatriate Category / Total Expatriate Headcount (Assignees + China Hire + Returnee) Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 10
Evolving Distribution of Expatriate Types Y-O-Y Expatriate Category Distribution 100% 80% 60% 40% 20% 0% 8.1% 5.6% 7.2% 6.7% 3.6% 2.9% 40.2% 41.4% 10.0% 6.9% 4.8% 4.3% 12.6% 19.9% 24.8% 21.5% 21.0% 50.5% 52.5% 6.3% 5.1% 3.0% 2.3% 6.7% 12.0% 57.5% 4.7% 1.6% 4.8% 26.7% 25.0% 2006 2007 2008 2009 2010 Data Source: Hewitt 2010 Expatriate C&B Study Western Economy HK/Singapore Taiwan Developing Economy China Hire Returnee Foreign Direct Hire Proprietary & Confidential December 7,2010 11
Expatriate Turnover (Attrition) Rate On the Rise 30.0% 25.0% Assignee Local Hire Foreigner Local Shanghai Non-Manu 20.0% 15.0% 10.0% 5.0% 0.0% 5.8% 7.3% 6.0% 7.5% 14.8% 5.3% 5.5% 9.6% 17.5% 2.9% 13.5% 10.3% 11.4% 14.3% 6.7% 4.6% 6.5% 5.3% 2008 2009 2010 2008 2009 2010 2008 2009 2010 Voluntary Turnover Rate Involuntary Turnover Rate Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 12
Expatriate Compensation Trends
Salary Increase Rates By Expatriate Type 10.0% Year on Year Salary Increase - Average 8.0% 6.0% 4.0% 2.0% 0.0% Local US Western Economy HK/Singapo re Developing Economy Taiwan Foreign Direct Hire China Hire Returnee Local China 2009 Actual 1.8% 2.6% 2.1% 2.3% 2.5% -- 4.2% 3.7% 5.8% 2010 Actual 2.4% 3.4% 3.7% 3.8% 3.8% 4.8% 5.8% 6.0% 8.4% 2011 Forecast 2.9% 3.4% 4.4% 4.0% 4.0% 5.6% 7.2% 7.4% 9.1% Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 14
Local Employee Senior / Top Management Pay in China Not Cheap! Median Actual Total Cash Index across APAC (China Index = 100) 150 140 135 130 120 122 110 100 90 Japan Hong Kong 106 102 100 Singapore Australia China India Taiwan Korea Thailand Malaysia 80 70 73 73 71 60 63 61 50 Data Source: 2010 Asia Pacific Total Compensation Measurement Study Proprietary & Confidential December 7,2010 15
Salary Gap: Assignee vs. China Hire Salary Gap by % of Target Total Cash 25.0% Gap by % = (Assignee Salary - China Hire Salary)/[(Assignee Salary + China Hire Salary)*2] 20.0% 21.0% 19.3% 15.0% 15.0% 10.0% 5.0% 6.4% 7.4% 5.4% 0.0% Sr. Management Director Top Executive 2008 2010 Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 16
Expatriate Benefits Findings
Expatriate Benefit Categories Assignee Global Package Benefits arrangement that is applied globally, usually for expatriates hired directly from global corporate headquarters. Regional Package Benefits arrangement that is applied within AP (Asia Pacific) Region, usually for employees hired from a companies regional headquarters. China Hire China Hire Package Benefits arrangement that is applied for China Hired Foreigners (Foreign citizens hired locally in China). Returnee Package Benefits arrangement that is applied for PRC returnees. Level Definition T Top Executives D Directors M Managers S Specialists Proprietary & Confidential December 7,2010 18
Expatriate Compensation Package Structure Premium Expatriate Benefit Package Housing Insurance Children Education And, more Proprietary & Confidential December 7,2010 19 16
Cash Premium Prevalence Cash Premium Prevalence 50.0% 42.9% 40.0% 32.8% 30.0% 20.0% 15.0% 16.0% 10.0% 10.4% 6.9% 7.7% 0.0% Global Package 1.3% China Hire Package COLA Hardship Allowance Foreign Service Premium Aggregate Allowance Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 20
Price Index in Different Cities - UBS Survey 2010 Cities Ranking 2008 Index Ranking 2010 Index New York 5 100 1 100 Paris 10 92.8 14 73.1 Tokyo 8 94.4 5 88.5 Hong Kong 35 72.3 12 74.1 Singapore 38 70.5 8 77.7 Shanghai 65 43.4 48 48.8 Beijing 67 43.2 57 42.4 Data Source: http://www.citymayors.com/features/cost_survey.html http://www.ubs.com/1/e/wealthmanagement/wealth_management_research/prices_earnings.html Proprietary & Confidential December 7,2010 21
Cash Premium as % of Base Pay (Average) Cash Premium as % of Base Pay (Average) 40.0% 30.0% 25.6% 29.1% 25.6% 21.9% 20.0% 15.1% 17.7% 10.0% 0.0% Global Package Regional Package China Hire Package 2009 2010 Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 22
Cash Premium by Location Cash Premium as % of Base Pay (Median) by Location 40.0% 35.0% 30.0% 29.3% 24.5% 24.9% 20.0% 10.0% 0.0% Sr. Management Director 1-tier 2-tier Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 23
Structure of an Expatriate Compensation Package Premium Expatriate Benefit Package Housing Insurance Children Education And, more Proprietary & Confidential December 7,2010 24 16
Prevalence of Housing Assistance Global Package Regional Package China Hire Package Returnee Package 100% 80% 60% 40% 20% 0% T D M S T D M S T D M S T D M S Actual Reimbursement with Cap Cash Housing Allowance Others No Assistance Provided Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 25
Typical Housing Assistance Budget by Expatriate Benefit Category Housing Assistance Budget by Expatriate Benfit Category (USD/Month) 10,000 8,000 8,172 7,452 6,000 5,793 5,147 5,613 4,000 3,196 4,185 3,258 3,575 2,000 2,422 1,613 2,116 0 Specialist Manager Director Top Executive Global Package Regional Package China Hire Package Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 26
Structure of an Expatriate Compensation Package Premium Expatriate Benefit Package Housing Insurance Children Education And, more Proprietary & Confidential December 7,2010 27 16
Insurance Benefits Prevalence Returnees and Foreign Direct Hires receive significantly less insurance coverage. 100% 80% 60% 40% 20% 0% Medical AD&D Dental Emergency Life Vision Travel Disability Income Hospitalization allowance Global Regional China Hire Returnee Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 28
Structure of an Expatriate Compensation Package Premium Expatriate Benefit Package Housing Insurance Children Education And, more Proprietary & Confidential December 7,2010 29 16
Children s Education Prevalence is less than last year Companies are placing more limitations on this benefit for China Hires 100% 2010 Prevalence of Children's Education by Level 80% 60% 80.9% 73.9% 68.3% 52.8% 77.8% 68.4% 58.1% 45.8% 63.8% 45.9% 40% 31.3% 20% 18.0% 0% Global Package Regional Package China Hire Package Top Executive Director Manager Sr. Professional Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 30
Children s Education Assistance Budget Majorities of companies provide budget at the standard of China s international school cost typically including application, tuition, and shuttle bus fee. Children's Education Assistance Budget (USD per Child per Year) Thousand T 24 24 20 Global Package Regional Package China Hire Package Median Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 31
Localization Trends
Localization Year-on Year Comparison Does your company have expatriate localization practices? 60% 40% 28.5% 28.5% 44.0% 45.7% 43.0% 57.7% 56.9% 40.3% 20% 13.8% 14.6% 14.0% 13.0% 0% Yes, Localized already No, but have plan No plan yet 2007 2008 2009 2010 Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 33
Localization Business Drive and Anticipated Results The Business Drive Behind Localization 100% 89.2% 80% 60% 48.6% 40% 20% 16.2% 0% Cost effectiveness More foreign talent supply Fast growth of local talent Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 34
Targeted Components of Localization Assignee Permanent Relocation China Hire Global HK/Sing apore Taiwan Global HK/Sing apore Taiwan Foreign er Return ee Cash Compensation Premiums (COLA, Hardship etc.) Basic Benefits Housing Assistance Transportation Assistance Home Leave Health Care Plan Premium Benefits Retirement Plan Tax Assistance Club Membership R&R Leave Children Education Spousal Assistance Data Source: Hewitt 2010 Expatriate C&B Study Proprietary & Confidential December 7,2010 35
Summary
Summary of Expatriate Market Trend Overall Trends Business in China continues to need foreign talent in order to meet growth expectations Market for foreign talent will expand and become more diverse The package differentiations are distinct. Retention mechanisms are needed for foreigners too Cash Trends Salary among assignees and China hires are aligning China experience counts Benefit Trend Benefit prevalence is decreasing, especially at Manager and Specialist level. The value of benefits will increase together with the price index of China. Flexible benefit gains more acceptance Localization Localization is on hold (for now) The cost savings are for the future, not for present Proprietary & Confidential December 7,2010 37
Questions Beecher Ashley-Brown Roger Wu beecher.ashleybrown@hewitt.com roger.wu@hewitt.com