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. Last Updated: 07/27/2016

The Party Is Over for Expatriate Perks

There is an expatriate living in Moscow who works for a big Western company. He receives a monthly housing allowance of $10,000. He has a car and driver for himself and another for his wife. Every year, he gets six trips home to the United States and four "rest and relaxation" weekend trips to Europe -- hotel and airfare included. And he makes 200 percent more than he would in New York City because his company considers Moscow a "hardship" post. He is not the president of this company. He is a manager.


His type -- and for reasons that will be obvious by now, he did not want his name used in this article -- used to be more common in Moscow. Five years ago, the hardship package existed for many expatriates in managerial positions. But today, even though it does still exist in some places, the porky expat benefits that were once needed to lure fresh talent from London and New York are becoming distant memories.


The U.S. Embassy classifies a hardship post as one in which health risks, civil unrest, terrorism, isolation, lack of outside things to do, and a language barrier exist. And while Moscow's smog may be bad and it may be a little chilly in winter, there are no ebola virus outbreaks or widespread malaria here.


According to a U.S. Embassy source who asked not to be identified, hardship pay for U.S. career diplomats stationed in Moscow has dropped in the last four years from a 25 percent bonus over base pay -- the maximum the embassy will pay for a hardship post -- to a 10 percent bonus.


"Moscow is not as tough a place as it used to be for embassy personnel," the source said, adding that they still get free housing, tax-free goods and a cost of living adjustment. "The relationship between the U.S. and Russia is not as stressful."


Big businesses working in Russia take a similar view. They are increasingly unwilling to pay a premium to move expats to Moscow.


"There is no hardship in Moscow -- it's a nice city," said Emory Kesteloot, a tax partner at Price Waterhouse, one of the big six accounting firms here. "We ourselves do not use the term 'hardship allowance.' Most companies are still providing a cost of living adjustment of about a 20 or 25 percent incremental raise. But not hardship.


"It was deemed to be a hardship when you couldn't find Western stores. Moscow today is looking like any other Western city. If you were to send someone to Bosnia -- where they might get shot or arrested -- we'll pay you a premium for this hardship. Four or five years ago it was a hardship, but now new restaurants are opening up every week."


Kesteloot said back in the days when Moscow was perceived by Westerners as a risky place to be, incentives were needed to bring employees and their families over. But now, rather than using bonuses, cars and houses to lure eager young managers over, increasingly companies use Moscow as a good career stepladder. "Now they're selling it as -- it's the best market to be in to move your career forward," Kesteloot said.


Alan Clack, a partner at executive search firm Ward Howell International, has been working in the head-hunting business in Moscow for five years. He had another theory about why "hardship" or "hazard" pay is disappearing -- namely that companies now often offer the same benefits cloaked in different names like "cost of living adjustment."


Clack said this is done to protect companies from lawsuits. If, for example, an employee develops cancer five years down the road, they could sue their former employer for knowingly putting them in a dangerous position.


But Clack also said he has seen a dramatic change in the corporate view of Moscow as a hardship post since he first arrived in the early 1990s.


"A lot of companies recognize the fact that this is a more expensive place to live but not necessarily a hard place to live," Clack said. "Tashkent and other province cities yes, but not Moscow or St. Pete." But he said the drop in allowances has affected mainly middle management rather than the highest levels of companies.


But many of the expatriates who were brought over here with hardship packages are now unwilling to give them up. An American attorney from a New York-based law firm -- who also asked not to be identified -- said she and her co-workers regularly have to defend their hardship allowance.


"Because of the elections and turmoil around Chechnya we haven't had our hardship packages reviewed for a while," she said, but she added, "They keep eating away at the benefits."


The benefits, she said, include moving expenses, a lump sum remont, or renovation, allowance for your apartment, housing allowance, U.S. leave once a year and European leave once a year including ticket and sometimes hotel costs. The benefits that have been eaten away include lunches and cars.


"We're on our own with cars now," she said. "We used to get our own cars."


She does not consider herself wrong in any way for asking for these benefits. "Moscow was just rated the worst place to live for expat lawyers by a recent law journal," she said. "People ranked how they liked living here. They don't."


"When you're moving someone over from New York or Washington D.C. you have to offer a lot. It is hard to get my laundry done and to buy groceries, and when I look at the prices, I know I'm not in New York."


But the New York lawyer will probably increasingly have to defend her benefits as companies struggle to keep their costs down.


Dick Sklar, head of human resources for Pepsi International, is the chair of the human resources committee for the American Chamber of Commerce. Sklar said between 40 and 50 people attend the committee meetings every month.


"Cost containment is a big issue and frankly Moscow is not deemed as much of a hardship anymore," Sklar said. "As costs have gone up in Moscow, companies contain costs mostly by training Russian employees to take the place of expats. The average number of expats in each company is decreasing. There are more expats, but that's because there are more companies."


He said the days when someone could come here fresh out of school with language skills and land a great job are gone.


"It's definitely a buyers' market. There are more expatriates who want jobs here than there are positions available. That was not the case a few years ago. Unless someone has specific skills -- they're a CFO [chief financial officer] or an attorney -- positions can be filled by a Russian who has experience working in a Western company."


So why are hardship packages still needed at all? According to Dan Filkins, director of business advisory services for Ernst & Young, hardship packages are needed less to lure talent over than to keep people here once they arrive.


While Filkins acknowledges that hardship benefits have dropped about "50 percent over the last three years," he said without the standard benefits like health club membership, medical insurance, school for kids and language lessons, expatriates won't stay for more than a year.


Filkins said his company publishes a number of reports including a cost of living monitor for both Russians and expatriates, and an expat salary survey. Reports like these set the expat benefit packages that most companies offer. The Ernst & Young surveys have over 400 subscribers, Filkins said, most of them multinational corporations.


"There are plenty of flats now in Moscow that don't require remont. But housing allowance is still there." Filkins said the Ernst & Young survey found that the average housing allowance for a manager-level employee was between $4,000 and $6,000 a month. This was arrived at by interviewing 40 different corporations about their benefits packages for expatriates.


"Part of it is state of mind," Filkins said. "If you don't keep these people happy, they're going to leave. Not everybody likes it a lot over here. What if you're over here and your wife can't find a job and your kids hate school -- that's a lot of pressure. There has to be a good incentive.


"Part of this is based on the company," Filkins said. "Some companies have a fleet of cars and give the higher ups a car. And it makes sense. The busier you are, it helps to have a driver. And if you have a family, you will need to have another driver to take your kids to school. Expat managers and above are typically working 12, 14 and 16-hour days. It's worth the cost of a driver to keep an expat on the job."


Another standard perk still included in expat packages for managers is the rest and relaxation trip. The average number of these long weekends in Paris or London or other European cities is four per year, according to Filkins. "Sometimes it's airfare only. If you're single, they'll pay for the hotel." Filkins said these trips are necessities for those hard-working expats. "If you don't force them to leave, they burn out. There's a reason behind all this."