The Top Talent Pass Scheme (“TTPS”) in Hong Kong has attracted around 6,000 applications since its launch by end of December 2022. The scheme can help combat the brain drain and staff turnover powered by the Great Resignation and the pandemic. From a talent attraction and retention perspectives, Pretium highlights a few areas worth to note and how to cross over the Scheme with long-term incentives to maximize the attraction and retention propositions.
Who is the Top Talent?
TTPS offers a two-year visa to applicants who earned at least HK$2.5 million (equivalent to US$320,000) in the past year under Category A. It is worth to note that this amount is not only confined to annual fixed pay, it also includes bonus and long-term incentives such as the value of stock options. As long as the notice of salaries tax assessment showing the total compensation reached HK$2.5 million will be applicable. This compensation threshold is roughly equivalent to the total compensation level of a director and above in the frontline or a C-suite position in the corporate functions.
For Category B under TTPS, it targets at graduates from the world’s top 100 universities over the past five years. For those graduates in these top varsities with less than 3 years of working experience is under Category C, who are subject to an annual quota of 10,000 visas. Graduates from the world’s top 100 universities can provide talent pipeline for middle to junior grade of staff. Top talents who purchase a property during their stay will be eligible for a refund of the extra stamp duty involved if they stay in HK for seven years and are granted permanent residency.
Long-term Incentives as the Golden Handcuff
Bonus to be paid in 2023 is expected to decline sharply due to debt crisis and surging interest rates. This will add fuel to the five-year high staff turnover triggered by the Great Resignation. Regardless of the categories, talent admitted under the TTPS are free to take up and change employment during their permitted stay without the need to seek prior approval from their current employer and the Immigration Department. The refund of extra stamp duty for home purchase after 7 years can only encourage the talent to stay in Hong Kong rather than the same company. Thus, it is crucial to retain these imported top talents in the company so they will continue to make contributions during the two-year period and beyond. Among the different retention levers, long-term incentives will be preferred choice targeting at C-suite, director and above positions earning HK$2.5 million and above. Apart from top talent retention, share-based incentive program has the added benefits in promoting alignment of interest between shareholders and the awardees as well as increasing the competitiveness of the total compensation package.
New Share Scheme Regime for HK Listed Companies
On January 1, 2023, amendments to Chapter 17 of the Listing Rule has come into effect. All companies listed on the Main Board has to comply with the amended requirements when they grant stock options or restricted stocks to top talent. The amendments to the Listing Rules that are relevant to the TTPS are summarised below:
There are also other disclosure requirements such as performance targets and clawback mechanism under the amendments which aim at interest alignment and strengthening corporate governance.
For private companies, similar kind of share based incentive can be an alternative and is not governed by Chapter 17. If share dilution is a major concern of the shareholders, cash-based profit sharing with multiple year of vesting can be provided instead targeting at top and critical talent to reinforce talent retention and interest alignment. Part of the annual bonus can also be deferred targeting at those who are at risk in terms of potential turnover and the business that they manage.
Integrate Long-term Incentives to Maximize the Impact of Top Talent Pass
With a raging talent war across companies and the globe, spiralling inflation, a fluctuating market environment and changing regulatory landscape, a holistic HR approach is necessary to increase the talent pipeline (such as through the TTPS) and to strengthen retention of top talent through long-term incentive scheme. The difference between the great and the good companies will boil down to how quickly HR can actually retain and integrate these talent so that they can contribute to the company for the long-term. No matter a company is more in favour of a share based or cash based long-term incentive program, it can serve multiple purposes of talent retention and interest alignment. Integrating long-term incentive scheme with the TTPS provides a good starting point to maximize the talent pool and determine the best path forward for a company’s pay design and human capital decisions.
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