To lawyers looking to be recruited, it seems like only a good thing – an extra bonus for working overseas. But when you consider its history and how managers see it, the Wall Street expat cash subsidy proves to be a delicate issue. Making it a bargaining point, for instance, almost always sends the wrong signals. How can a lawyer avoid these pitfalls? And what role should the subsidy play in the lawyer’s decision to accept an offer?
For the purpose of this commentary I’ll assume that the candidate is a US national who has a US federal tax liability.
Today’s expat cash subsidy for Greater China (in Japan it’s a very different standard) amounts to about US$65K to US$90K per year, in addition to a NY salary and a NY bonus. The original rationale was that a lawyer shouldn’t be penalized by moving to a ‘far flung’ office (as China was viewed by Wall Street back in the 90s), whether that penalty follows from a higher tax liability than back home (eg, New York) or higher housing costs or cost-of-living generally.
The underlying idea was that the firm should intervene to ensure that – on a per-class basis, after basic living expenses – all their associates would at the end of the year net the same compensation in their pockets, with the office of origin or of record (generally New York) setting the standard.
By this rationale, however, there’s currently little to no justification for an expat subsidy: the cost of living (for a US taxpayer) is comparable in New York, Hong Kong, and Beijing. Seen in this light, the current expat subsidy is just a US$65K to US$90K per-year gift.
Yet the expat subsidy remains commonplace among Wall Street firms, and it’s taken on a slightly different function: as a recruiting tool or retention bonus, kin to a start-up bonus. This, at least, is how management sees things. And here’s where there’s the danger of a clash of perspective between candidates and firms. From the latter’s point of view, negotiating for a higher expat subsidy is like asking for a higher start-up bonus – which is usually seen as pushing too hard in the wrong place.
Candidates should recognize this. After a firm has extended an offer, making demands for additional subsidies – or even soft, nuanced requests – will be viewed by management as devoid of logical justification, as purely self-serving, as indicating a flaw in judgment. From management’s perspective, the expat subsidy is ‘free’ money, and pushing for more is like demanding free money on top of already free money.
Of course, there can be special instances where the candidate has legitimate grounds for negotiating a larger expat subsidy. In my experience, however, this is rare.