Expats feel cut in benefit packages

Mary Kingsley, a British explorer in the 19th century, is chiefly remembered for traipsing through the steaming jungles of what is now Gabon wearing layers of petticoats and carrying a parasol. She famously used the parasol to fight off a hippopotamus, but anything she may have usefully achieved in Africa is largely forgotten.

More recently, generations of Western business people have unwittingly followed Kingsley's example on overseas postings. Many have added little value to their enterprises, but are renowned for expensively recreating the comforts of home. Depending on nationality, they have eaten baked beans, croissants or pancakes, and sometimes played cricket, wherever in the world they and their families have been sent.

This mindset is one of the traditional justifications of "expat terms" - the expatriate benefits packages that are so jealously guarded by their recipients, so costly for employers and so resented by local staff. For investment bankers, they are often worth tens of thousands of pounds a year and typically include housing, tax payments and school fees.

These benefits are now under attack from two sides. Banks and other employers are urgently cutting costs in the economic downturn and at the same time attitudes towards expatriate living are changing fundamentally. Expatriate benefits are not disappearing altogether, but employers are giving them more selectively.

The head of European human resources at a US bank says bulge-bracket employers are cutting back expatriate perks for staff based in London, Frankfurt and Paris. "Some staff are being sent home. Others are tapped on the shoulder and told that if they want to stay, it will have to be on a local package." He says Citigroup and Goldman Sachs are among those acting firmly.

Denis Marcadet, a headhunter at Vendômes Associés in Paris, tells of an American corporate financier who lost his job after four years on expatriate terms. "His bank told him to move to a local deal, which would have cut his pay by more than half. So he left. Now no other bank will match his old benefits."

Marcadet is not surprised. He says: "When I recruit for investment banks nowadays, nationality is not often an issue. Expatriate benefits are rarely offered."

Art Siksna, head of human resources at Royal Bank of Canada (RBC) in London, says: "Young people nowadays are often keen to come over from North America to Europe on a local package. Banks are waking up to that."

Like other banks, RBC still offers housing allowances, contributions to school fees and paid flights home for favoured staff, but on a more ad hoc basis than five years ago.

Siksna says even before the downturn, the bank had moved away from an automatic equalisation of salaries, by which Canadian staff, for example, in effect pay a Canadian income tax rate while in Europe.

Other employers have done the same. Human resources consultants say the reason is partly psychological. Globalisation is making lifestyles around the world increasingly uniform and reducing the feeling that "abroad" is utterly different from one's own country.

There are straightforward business factors, too. These include rising numbers of well-qualified local staff, notably in Asia, and better technology. Video conferencing, the internet and cheap air fares all reduce the need to keep an employee overseas.

Vic Daniels at the global consultancy DBM says: "As the world becomes smaller, the need for expats becomes more questionable. Unless an expat has specific skills that are required in a particular market, it is difficult to justify the expense."

A headhunter in Frankfurt says Lehman Brothers was among the banks that had cut expatriate benefits sharply in the past five years. "Some of their expensive foreign staff didn't know the clients and did not know the markets. They were semi-tourists. The bank was right to get rid of them."

Sending a US banker on a salary of $100,000 (€85,000) to Europe can easily cost the employer an extra $100,000, or much more if expatriate terms are generous, according to the consultancy Watson Wyatt. As well as housing, utility payments, school fees and tax equalisation, other benefits can include club memberships, car allowance and plane tickets back home for the whole family.

The benefits bloodletting has not been confined to Europe. ABN Amro is among many banks that have cut benefits in Japan. Duncan Reed, a former ABN Amro managing director in Tokyo, says: "It was an overpaid situation that was unsustainable when revenues were falling. Banks are now hiring more Japanese staff or Western bankers on local terms."

Now back in London with Mizuho, Reed says he felt well rewarded in Tokyo, with a generous housing allowance and offshore retirement and bonus packages.

Peter Jackson is another banker who left the UK for a life of expatriate ease in Bahrain. The "expat" part of his package increased his salary by 50%. He says staff need to negotiate packages carefully. Business-class flights back home can be turned into three times as many economy class flights for the same price - but only for staff who ask their employer to make the switch.

Banks will always have to pay generous expatriate packages for "hardship" postings such as Saudi Arabia, human resources staff say. Important staff anywhere will also be able to make big demands, especially if they have a family. "You can't expect a spouse to relocate unless he or she is happy with the arrangement," says one.

Benefits are often related to cost of living indices for different cities. In Mercer's 2003 list, Tokyo is the most expensive, followed by Moscow. London is seventh and New York 10th.