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Tuesday » June 19 » 2007

Talent stops at the border

Paul Brent
Financial Post

Wednesday, April 25, 2007

To hire someone from a U.S. state with no taxes, he would have to raise the salary nearly 30% says Jim Yager of KPMG.
CREDIT: Getty Images
To hire someone from a U.S. state with no taxes, he would have to raise the salary nearly 30% says Jim Yager of KPMG.

Canadians love to gripe about their taxes. But it seem s all that complaining has made its way beyond our borders, exacerbating the already difficult task firms have attracting foreign talent from places such as the United States and Europe. And no where is this crunch expected to hit harder than in financial services.

"I see it all the time," says Jim Yager, a partner with KPMG Canada's international executive service, whose group consults on hundreds of cross-border relocations every year. "The company or the headhunter will come to me and say, 'This guy is making $100,000 in the U.S., what do we have to pay him to give him the same amount of take-home pay?' I'll do a gross-up calculation and usually they will fall off their chair when they hear the [salary] differential."

The higher cost of living north of the border, a function of taxes, the lack of mortgage deductibility and relatively high home prices in cities such as Toronto and Vancouver, generally proves to be the chief stumbling block for recruiting U.S. talent, Mr. Yager says.

The KPMG consultant uses the example of a Texas executive, with a wife, two children and a salary of US$150,000. He pays deductible mortgage interest of US$25,000 and works in a jurisdiction with no state tax. To take home the same amount of after-tax pay, he would require a 28.2% raise, or an annual salary of US$192,322. "That's an impediment to bringing people up here," he observes.

"You find that with any position because even at lower levels of income the tax rates in the United States are a lot lower than in Canada."

Taxation is less an issue in Europe, which generally has only slightly lower taxes than in Canada. Here though, our government does not offer the level of tax benefits to attract foreign executives as do some European countries such as Britain or the Netherlands.

Last month, a Deloitte study found Toronto's financial services industry is heading for a critical shortage of key talent which "could undermine revenue growth and productivity in Toronto's main industry."

The study found 25,000 of the city's financial services workers are today 55 years of age or older, with the average age of retirement for the sector in the early sixties. That soon-to-retire group of Boomers has also more than doubled in the past decade, which will make the shortage even more dramatic in five years or so when they leave the workforce seemingly all at once.

The study concludes Toronto's financial services industry needs to attract more international talent, but acknowledges it is easier said than done. While Canadians considering a move to the country's financial capital worry about the cost of living, traffic and lifestyle, it is lower compensation, health care and a perceived lack of advancement opportunities that concern non-Canadians thinking about relocating to Toronto.

Canadian employers must first deal with the basic ignorance of foreign candidates about the level of our federal and provincial taxes and living conditions, says Marty Parker, managing partner of Waterstone Human Capital Ltd., who finds Americans, in particular, think taxes in Canada are more punishing than they really are.

"Second, of all, even if you deal with that, there is a low probability [of successful recruitment] unless you make a link to Canada," he said. "Either they went to school here, they lived here briefly as a child [or] their spouse lived in Canada," he says. "There has got to be a connection, or else your odds are so low."

Mr. Parker's firm, currently attempting to recruit foreign doctors to staff a private clinic, is encountering this lack of connection with Canada. "We are finding that unless there is the educational or familial link, it is just impossible -- and they can earn really well --more money let's say, substantially."

He finds it is easier to recruit from some parts of Europe, such as the United Kingdom, the Benelux countries (an economic union between Belgium, the Netherlands and Luxemborg) and France. The sticking point is often not money, but cherished benefits such as vacation time. "Even at a senior level, when they hear that it is a maximum of four weeks, their eyes glaze over."

Waterstone Human Capital is having some success with eastern Europe countries such as the Czech Republic and Poland. "It depends on the country," he said. "Try to recruit somebody from Vancouver to Toronto." His firm has found it is not much more expensive to relocate a prized employee from Europe than it is from Canada's West Coast, for example.

Canadians take pride in being citizens of the world but fall down when compared to countries such as Australia, where people in business are more aware of employment opportunities overseas, Mr. Parker contends. His firm is mining the ex-pat community in Europe to identify talent who may consider moving to Canada. Foreign upheavals and terrorism also provide a spur for people in Europe to consider moving to Canada, which remains easier to enter and work in than the United States.

The "safe and friendly" Canada card is often played by headhunters. "A lot of people see Canada as a consistently friendly environment that is safe, with a strong economy," said Minto Roy, president and chief executive of Vancouver recruitment firm PCMG Canada. "Because it is easier for people to qualify for landed status or work permits, this becomes a natural choice as long as they are willing to take a bit of a pay cut to get a better lifestyle and a better political climate. But safety, political climate, health, clean air, friendliness, better opportunities for their kids, these are all very attractive values and principles."

"At the end of the day it is not all about money," Mr. Roy says.

His firm places many South Africans, who have "been living very lucrative lives," but desire to get away from the violence and political uncertainty.

Still, the job of international recruiting is not getting any easier, which could mean some major headaches on Bay Street when all those fiftysomethings start retiring.

"In general, relocation is getting more difficult," Waterstone's Mr. Parker says. "People are getting more dug in, they don't need to relocate for senior jobs like they used to."

fpworking@nationalpost.com
© National Post 2007


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