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The Asia Chronicles: Champagne Wishes and Caviar Dreams

Tuesday, April 29, 2008 5:45 PM - By Asia Corporate Lawyers

Hong Kong skyline HK island skyline Above the Law blog.jpgFor the second installment of the Asia Chronicles, we’re going interactive. Please click on this Youtube link, minimize, and read on.

Come with us, won’t you, to a world of your imagination. Imagine that you’re an associate at a major U.S. law firm in Asia, paid the same salary and bonus as your colleagues back home. Imagine further that $87,500 of your salary is excluded from federal income tax. Imagine that your firm pays your rent, and, even though this would normally be considered taxable income, it is excluded from taxation as well.

One of the ACLs who lived in this “world that defies explanation” paid off his entire $120K+ law school debt in one year and is on track to put away over a quarter million during the next two years. How? With extra salary and a much lower tax burden, he takes home approximately 15% more cash than he would in the U.S. He has no car or other transportation expenses (walks 10 minutes from home to office), usually works late enough to expense his dinners, and pays no rent. He takes so many business trips that frequent flier miles and hotel points take care of most of his vacation expenses. At least 80% of his paycheck goes straight into his 401K and other investments. The rest goes to magnums of Cristal (he admits he could do better).

Before we jump into the details, let’s set out some assumptions:

Assumption #1: There are tons of U.S. firms in Asia; some pay less, some pay more. A sizable group of firms pays competitive packages (yes, we said “packages”) at or near the top of the market. This entire discussion focuses on that group because, let’s be honest, for most of us “the law” isn’t our calling. We don’t sit up at night thinking about Section 4(2) of the U.S. Securities Act or wonder about the components of a conversion formula in a share purchase agreement (wait, maybe someti… ok, no … never). So, for the purposes of this discussion, let’s just assume that it’s mostly (almost entirely) about the Benjamins. (Or Maos? Lees?)

Assumption #2: There are U.S. lawyers in Vietnam, Indonesia, Thailand, etc. But, to borrow from XOXO/Greedy Associates lingo, this discussion focuses on “BIGLAW” in the major Asian markets (i.e., Tokyo, Singapore and the greater China region) at “Vault”-listed firms. HTH.

On to the main event. Salaries. Three words: New York levels. Bonuses. Three words: New York levels. That’s right. When you guys over in New York rejoice over the raises, so do we. But, there’s more. A few years ago, there was this evil little SOB of a concept called “tax equalization” whereby firms, for whatever reason (well, we know the reason; you do the math), decided to pay their overseas U.S. associates an amount in salary that was equal, after tax, to what an associate in New York would be paid. Yes, that means poor little Billy in Asia was “theoretically” paying New York city and state tax. Firms have since moved away from this model. In a low-tax region like Singapore or Hong Kong, this means associates can take advantage of the low tax rates. What’s that, you say? The U.S. taxes on worldwide income? Fear not. Certain provisions in the tax code are geared towards providing tax breaks for U.S. citizens working worldwide. Bottom line, associates in Asia at U.S. law firms also pay less in taxes each year.

Ohhh, and it doesn’t stop there. Remember the reference we made to “packages” above? Firms in Asia (except in, only God knows why, Singapore ) foot the bill for their associates’ housing expenses. Many firms pay this housing allowance in cash each month, some pay the rent directly to the landlord. Many firms then let associates keep the difference between the rent and the allowance. The word on the street is that a certain Wall Street law firm whose name begins with an S and ends with a T pays top of the market at about $80,000 a year. So, if you’re an associate at this unnamed Wall Street firm that rhymes with Pimpson Cratcher and your rent is $40,000 each year, you’re pocketing an extra $40,000. It’s the “special bonus” that never stops giving.

According to Evan Jowers of Kinney Recruiting (who has eyeballed perhaps more offer letters from the major US and British firms in Hong Kong / China than any other person in the industry), “The housing / expat packages at the top U.S. and British firms in Asia are likely to go higher in the next year or two. Many of these firms have substantially raised their packages in only the past 6 months, with there now being many more firms in the what I consider to be competitive housing allowance range in Hong Kong, $65,000 to $80,000, than a year ago. In fact, the number of firms with housing packages over $70,000 in Hong Kong has more than doubled in the past six months.”

More delicious details, after the jump.

“Also, a number of firms that have up until now offered their expat / housing packages on a case by case basis are currently in the process to adopt standardized packages for all their associates,” said Evan Jowers of Kinney. “Robert Kinney, Kinney Recruiting’s founder and president, and myself have been asked by a number of firms in HK / China to assist them with either creating new expat / cola / housing package policies for associates or providing confirmation that their packages are competitive in the HK / China market. The number of firms asking for such assistance has been rising lately. There seems to be more urgency now than ever for the majority of the top U.S. and British firms to know that they are offering a very competitive compensation package for their associates in the Hong Kong / China market, which is of course great news for laterals.”

Also, according to Evan, many US and British firms in Asia pay for the private school costs for associates’ children (which can be over $25,000 per year) and also add substantially to the housing allowance for each child, whether school-aged or not, with usually a $10,000 to $20,000 extra housing allowance per child.

Then there are other perks. One free ticket “home” to the US each year (usually a business class ticket), free tax preparation services, free language tutors, technology allowances… Evan says that one major firm in town even offers the use of the firm junk to associates on a rotational basis. To anyone who thinks the junk may be “junk”, think again: it’s a nice, full-sized yacht. We would go on but it would hurt too much.

As the saying goes, there’s no such thing as a free lunch. All of this comes with tradeoffs, which we’ll discuss next week. Until then, we’re always available at, yes, asiacorporatelawyers at gmail dot com.

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Kinney Recruiting has made more placements of U.S. associates and partners in Asia than any other firm in the past two years.

[Disclosure: Kinney is the sponsor of this post.]

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Posted in: Asia Chronicles, Biglaw, Money, Perks / Fringe Benefits, Skaddenfreude

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