Asia Market Update

Attribute to Jacob Hansen, Asia Legal Blog

As the global economy continues to feel the effects of the 2008 recession, it faces both short and long-term challenges. But new and exciting opportunities are being created as the world’s markets walk the road to recovery. Southeast Asia has become an area of growth, attracting many firms and attorneys wishing to expand their portfolios abroad. The legal market in Asia is continuing to grow at record speed, changing the landscape for expatriate lawyers with an increase and broadening of opportunities for associates, partners and firms, a rapid and substantial deal flow.

According to the American Lawyer, Am Law 100 law firms had mild gains in 2012. They reported that gross revenue for Am Law 100 law firms was up 3.4 percent, average revenue per lawyer was up 2.6 percent, and average profits per partner were up 4.2 percent. Notably, this growth was uneven and the more successful firms tended to have a strong international presence, and well as a diverse set of practice areas.

Asia is a strong area of international growth and this extends to the legal sector. The Asian legal market is on pace to double in size by 2017, according to Asia Law Portal. Their analysts project the Asian legal market to grow 6 to 7 percent over the next 8 years, creating a strong incentive for U.S. and U.K. to get on the ground floor for fear of being left out.

Among those countries garnering interest is South Korea, who may be on the path to becoming an important international arbitration hub. Following the enactment of free-trade agreements with the U.S. and EU in 2011, South Korea has opened its legal market to foreign firms [when and please add a hyperlink to the South Korea article]. Dozens of international law firms have already begun to set up shop, such as Baker & McKenzie and Linklaters receiving regulatory approval from South Korea’s Ministry of Law as recently as May of this year. Some analysts are concerned that the market may eventually become overcrowded, but others remain optimistic that there will be plenty of room in South Korea.

Following the trend from last year, Singapore continues to see foreign law offices opening their doors in the Lion City. In May, Simmons & Simmons opened its first Singapore office with a focus on asset management, energy, life sciences, TMT and the financial services sector. Akin Gump opened its first Singapore office in January, while Clyde & Co. formed a joint law venture with Singapore firm Clasis in July. With the continued expansion of Singapore’s legal market, foreign firms are expected to keep establishing a presence and hiring on the partner and associate level in the Lion City.

Firm activity was not limited to expansion, however, and 2013 has been a year of border-crossing mega-mergers. Ashurst has moved up the timetable for its merger with Australian-firm Blake Dawson. A vote is expected to take place this October to confirm the groups’ merger. London-based Norton Rose and U.S.-based Fulbright & Jaworski united to become Norton Rose Fullbright. The merger created one of the largest law firms with a massive footprint in the U.S., Asia, the EU, and beyond. Not to be outdone, SNR Dentons joined together with Paris’ Salans and Canada’s Fraser Milner Casgrain to create a firm that employs close to 2,600 lawyers and professionals. The new firm has been rebranded as simply “Dentons”.

One of the fastest growing industries in the Asian legal market is the energy sector. As more and more Asia countries move toward industrialization, there has been an increased demand for fuel and energy. And, as a result, there has been an increased demand for attorneys to help manage energy transactions and now, more and more, litigate related issues. For example, China has begun to look toward Latin America as its need for energy and resources continues to increase. We at Cypress have noticed an uptick in demand for energy lawyers to work in Asia. While overall energy demand has dipped slightly in recent months, market analysts are confident this is only a temporary blip.

The M&A market in Asia continues to flourish despite a few setbacks. M&A lending of $30.5 billion made up 18.5 percent of the total Asia-Pacific loan volume in the first two quarters of 2013. The amount already exceeds that of 2012 at $28.4 billion, and puts 2013 on track to near the record-setting 2007 ($80 billion). Attorneys of all levels with a strong M&A background remain in vogue for firms expanding throughout Asia.
Asia’s role in capital markets has faced challenges with government cooling having an impact in Singapore and Hong Kong, but there are hopeful signs. Overall growth across the first half of 2013 was greater than in the first half of 2012, indicating a possible upward trend in 2013’s second half. There continues to be demand for capital market attorneys with debt and equity experience and Cypress currently has a record number of positions available for attorneys with or without local language capabilities and either US or HK listing experience. Here at Cypress we typically advise capital markets attorneys practicing in China to try and diversify their practice by working on US, London, HK and mainland China listings.

Cypress Recruiting is well positioned to ensure that your next move is the right one. Cypress is the only legal recruiting firm that has focused on partner and associate recruiting in Asia for over ten years. We have excellent relationships with law firms across the Asian region.

In this regard, it is worth noting that we are representing several law firms that are seeking to bolster their corporate, capital markets, M&A, arbitration, and other practices in Hong Kong, Singapore, Japan, and mainland China. For more information, please visit our job listings on our website.

Compensation Report

Attribute to William Wesley, Asia Legal Blog

As top firms are recovering from the economic recession, they are offering increasingly competitive packages in order to attract and retain top legal talent in the Asia market. Hiring conditions across Asia are showing steady and noticable signs of improvement with new openings in fund formation, project finance, capital markets, M&A and FCPA/litigation.

Interestingly, the Hong Kong market for the last twelve months has been experiencing the beginning of tussle for HK qualified associates as a few American firms have begun to pay their Hong Kong qualified associates at New York-scale salaries starting at $160,000 for first years. However, it is important to note that not all of their competitors in Hong Kong have followed suit and some are waiting to see how these salary changes develop.

The Hong Kong and Beijing offices of US NLJ 350 firms also saw large increases in their lawyer headcounts this year. Beijing firms experienced an 11% gain and Hong Kong firms experienced a 5.6% gain.

When comprising an offer, law firms consider several factors such as cost of living, hardship associated with living in particular locations, familial status, competition/supply of appropriate candidates with a particular skill set, the firm’s interest level in a candidate, profitability of the office, and the firm’s ability to attract and retain top talent. As more U.S. law firms establish offices in Asia and compete for legal talent, expat packages might increase.

For lawyers wanting to make a lateral move, it is more important than ever to thoroughly research the various benefits of potential placements. Be careful and use an experienced and knowledgeable recruiter who can provide you with current remuneration information and negotiate on your behalf. Make sure that the recruiter has experience in the specific market, and a sharp focus on that market.

                                                                    Ex-pat Package Must-Haves

US Qualified Associates:

Base salary: At the most competitive law firm in terms of compensation, US qualified lawyers are paid at New York rates ($160K for first year lawyers, $170K for second, $185K for third, $210K for fourth, $230K for fifth, $250K for sixth year lawyers). Firms that pay NY rates include but are not limited to the Wall Street law firms and other firms that compete most directly with the Wall Street firms for associates. Generally speaking, the more profitable the law firm in terms of profits per equity partner and revenue per lawyer, the more likely they are to pay NY rates regardless of whether they are headquartered on Wall Street.

The law firms that do not pay NY rates tend to pay rates that are equal the rates paid in the office where the firm is headquartered, but as mentioned above many non-NY firms still pay NY rates. At firms that do not pay NY rates, associates still earn well into six figures, but on average about 10-15% less than NY rates.

Bonuses: Some firms offer discretionary bonuses that will follow those given to attorneys at the firm’s head office. Depending on the firm, any performance bonuses may be pro-rated, and this is typically based on the candidate’s start date and marketability as well as the firm’s profitability in that fiscal year. The more competitive firms pay flat bonuses that are consistent with New York bonuses, while some firms tie bonuses to factors including class year, hours, and/or pro-bono activities.

Tax Consequences: U.S. citizens and permanent residents (green card holders) must pay U.S. income tax, in addition to any income taxes due to the host country. However, there is relief – the first $95,100 of your salary will be excluded from your U.S. income tax liability, regardless of location. Housing allowance exclusions vary according to country (i.e. in Hong Kong, your housing payments are deductible up to 50% of your taxable income).

Tax Equalization: Due to double taxation on sums above the exemption, most international firms have implemented a tax equalization plan as part of a remuneration package, which can offset the expatriate’s tax burden and sometimes undermine a tax benefit to associates in certain markets. Tax equalization plans are designed to make taxes a neutral factor in an expatriate’s compensation package.

A U.S. taxpayer may also exclude a certain amount of his or her foreign housing expense that is the excess of the taxpayer’s reasonable “foreign housing expense” for the tax year over a “base housing amount” equal to 16% of the maximum foreign earned income exclusion amount for the calendar year, multiplied by the number of days of foreign residence or presence by the taxpayer for the year. However, foreign housing expenses may be excluded only to the extent of the lesser of: (i) the expense attributable to the law firm provided amount; or (ii) the taxpayer’s foreign earned income for the taxable year.

Expat benefits: Firms generally offer a range of benefits for foreign nationals working in Asia. A variety of factors influences the package that is offered, including cost of living, profitability of the office, the firm’s competitiveness in the legal market, an attorney’s nationality and academic pedigree, and whether a firm considers the location to be a hardship destination. For example, Singapore firms often do not offer expat compensation because it is not considered a hardship post, but some law firms there have begun offering benefits between US $20,000 and US $45,000.

UK Qualified Associates

Salaries and Bonuses: Throught Asia, the magic circle firms pay their UK associates rates similar to what they would earn in London at the same firm (but US associates are paid US rates). [Susannah- Maybe we can list rates for 1, 2, 3 years qualified etc for a magic circle firm like Allen Overy, etc.]

It’s worth noting that salaries tend to vary slightly (maybe one or two percent) between Magic Circle firms for each class year, but these firms tend to basically pay the same rates. UK Lawyers are paid bonuses from between 10 to 40% of their annual salary depending on PQE and performance. Other benefits like tax equalization are not uncommon.

                                                                         Hong Kong

For more information on basic salaries for US and UK qualified associates in
Hong Kong, please refer to Section 2 above (“Expat Package Must Haves – US Qualified Associates and UK Qualified Associates”). Expat packages in Hong Kong at firms that pay such compensation (many do) can range from $20,000 to $70,000.

For Hong Kong qualified associates, packages in Hong Kong have experienced much more variance than usual this year, as a few American firms have chosen to pay all of their associates, whether US or Hong Kong qualified, New York scale salaries starting at $160,000 for first-years. Benefits often include housing and moving allowances for the associate. However, generally speaking Hong Kong-qualified attorneys will receive pay consistent with the domestic market. For Hong Kong associates, the median starting salary is HK$63,000 per month. Moreover, Hong Kong associates receive bonuses that are on average 12.5% of the lawyer’s salary

                                                          Mainland China (Beijing and Shanghai)

For more information on basic salaries for US and UK qualified associates in Mainland China, please refer to Section 2 above (“Expat Package Must Haves – US Qualified Associates and UK Qualified Associates”). Expat packages can range from $20,000 to $60,000.

Taxes are higher in Shanghai and Beijing than in Hong Kong but the cost of living is significantly lower than in Hong Kong, so ex-pat packages are typically about 20% smaller. With that, firms will often tax equalize pay to ensure that lawyers in Mainland China receive remuneration similar to associates in Hong Kong. Essentially, associates in Mainland China will receive benefits that are similar to the Hong Kong ex-pat model package.

PRC Nationals: PRC attorneys who have a JD are usually hired as associates while those with only an LL.M. from a top U.S. law school, who are qualified to practice in New York or California, and have worked at an international law firm might be hired as “associates,” “foreign associates,” or “legal consultants,” depending on the law firm and level of experience.

Compensation for PRC nationals can vary, but they certainly receive a higher salary at a foreign firm rather than at a Chinese firm, although the pay at a U.S. or U.K. firm for PRC nationals might be far below that of expatriates. The range for an annual base salary for a PRC associate would start at 50,000 to 120,000 RMB, and increase with experience. Bonuses for PRC nationals might also be lower than for expatriates, and, unless they hold a green card, they most likely will not receive an ex-pat allowance of any kind. Some firms offer travel and relocation expenses but that is becoming rare in the current market.

                                                                        Tokyo

General Considerations: In Tokyo, the ex-pat packages that went out remained stronger than in any other Asian market, given the cost of living and particularly small supply of bilingual attorneys looking to practice there. The packages range from $45,000 to $85,000 USD, depending on seniority, familial status and firm. In Tokyo, most U.S. and U.K. firms also offer to cover the costly venture of relocating and securing housing there, and they cover the “key money” and deposit, acting as guarantor and usually signing leases in the firm’s name.

U.S. and U.K Nationals: U.K. firms offer salaries are linked to the lawyers’ level of qualification in London with a significant additional cost of living allowance. Such benefits, include, health care, gym membership, and airfare expenditure.
U.S firms offer a lump-sum salary to their associates, which will be higher than the salaries given by U.K. firms. Some U.S. firms will give associates “New York scale” salaries with benefits. In general, bonus packages follow the firms U.K or U.S. model.

For more information on basic salaries for US and UK qualified associates in Japan, please refer to Section 2 above (“Expat Package Must Haves – US Qualified Associates and UK Qualified Associates”).

                                                                     Singapore
General Considerations: Law firms in Singapore historically did not offer ex-pat packages, given that it was not considered a hardship destination and the cost of living is so moderate. But as Singapore began competing with other locations such as Hong Kong for top attorneys, firms there had to start offering certain benefits including relocation and minimum housing allowances. In general, these benefits offered by firms range between $20,000 to $45,000 USD. Some firms do not offer any allowances because companies and firms considered Singapore a non-hardship post.

U.S and U.K. nationals: For more information basic salaries for US and UK qualified associates, please refer to Section 2 above (“Expat Package Must Haves – US Qualified Associates and UK Qualified Associates”).

U.K. firms offered salaries that ranged from SG$120,000 to $140,000. However, lawyers in Singapore were given bonuses around 10 to 15% of their annual salary. Moreover, the tax rates in Singapore are smaller than in London, and most associates rarely pay more than 15% in tax.