Coughing up the cash: Panasonic’s China expat pollution pay-out

When does an overseas hardship posting become something that could actually be harmful to your health?

Japanese electronics maker Panasonic caused a stir last week when it became what is believed to be the first major international company to pay a premium to its expatriate staff in China as compensation for the potentially dangerous levels of pollution there.

Casting a spotlight on the impenetrable murk of China’s smog-bound cities, Panasonic’s announcement raises interesting questions both for China and for overseas firms operating there.

Business who operate in China will understand that Panasonic is responding to employee pressures

Professor Kenneth Richards, NUS Business School

Kenneth Richards, NUS Business School Musim Mas Visiting Professor of Sustainability, says the firm’s move is “a clear signal to the Chinese government that pollution and unabated environmental degradation has become a limiting factor in economic growth.”

At the same time, he says, Panasonic’s announcement means the firm has “respectfully but clearly placed itself at the forefront of companies that are pushing for environmental reform in China.”

China, Richards says, has been using a number of blunt instruments to control pollution, but data has shown that’s had little impact on bringing down rising air pollution.

Indeed the situation has reached such a peak that Premier Li Keqiang earlier this month pledged the government would “resolutely declare war against pollution“.

Lack of enforcement

pollution280China’s premier has pledged a “war against pollution”Strong words though, even accompanied by apparently tough laws, have little effect without enforcement – something critics say is sadly lacking.

One report in February said levels in Beijing of PM2.5 particles – the airborne pollutants considered most dangerous to human health – reached 15 times the daily maximum allowance recommended by the WHO.

Another recent survey by the Chinese government showed that of China’s 74 largest cities, just three met the country’s own air quality standards.

And last month a study by Chinese scientists warned that pollution levels had become so bad that it was producing environmental conditions “similar to a nuclear winter“.

Against that background it is unsurprising that firms are finding it hard to persuade staff to take up positions in China, while many who are already in the country – especially those with young children – are contemplating whether to leave.

Health impact

Hardship allowances as part of expat packages are nothing new, but they usually tend to be seen as a way of offsetting problems staff might face finding their favourite brand of coffee or suitable education for their children.

Panasonic though is thought to be the first company to explicitly tie a portion of its compensation package to China’s often appalling air quality – and with it an implicit acknowledgement of the health impact this might have.

The firm did not say how many staff would benefit from the scheme or how much the ‘smog bonus’ – as some media dubbed it – would amount to. However, it will only apply to expatriate Japanese staff and not to local Chinese employees.

‘Insurance payment’

Daniel McAllister, Associate Professor at NUS Business School’s Department of Management and Organisation, says Panasonic’s move raises some complex issues in terms of HR policy and organisational responsibility.

batteries280Like other electronics firms, Panasonic sources many own-brand products from Chinese suppliers“If an employee is offered and accepts financial assistance as compensation explicitly for pollution, do we understand this as absolving the company of its responsibility to take care of any later health problems experienced by its employees as a result of where they worked?,” he says.

“If we think of this as a form of ‘insurance payment’ that absolves the company of future obligations, it’s a move that is financially savvy but is it really caring?”

McAllister also says Panasonic’s explicit distinction between expatriate and local staff might be seen as an affront to China.

“China should have no problem with the idea of differential pay for expat talent in general,” he says. “But it is likely to respond in a strong manner to symbolic cues with an elitist tone.”

Indeed, by putting the spotlight on air pollution while seeming to overlook its own responsibility in other areas might open the firm to accusations of double standards.

McAllister notes that Panasonic, like many other electronics firms, sources its branded products from a range of Chinese suppliers.

Panasonic branded batteries, for example, are sourced from producers in the southern Chinese city of Huizhou, several of whom have been the target of criticism for health-related problems experienced by the mainly female staff they employ.

The degree to which these suppliers adhere to Chinese environmental regulations and to the welfare of their employees varies widely, McAllister says.

“For Panasonic, that raises the possibility that the firm may actually be contributing to health problems for Chinese employees while at the same time paying extra to its expatriate employees for the hardship of being there.”

Employee pressures

With little immediate prospect of change in China’s environmental situation, Richards thinks it likely that other firms will follow Panasonic’s example.

“Business who operate in China will understand that Panasonic is responding to employee pressures,” he says.

“The government will need to either ratchet up the pressure with current approaches or find new ways to address air pollution. They are hesitating, at least in part, because they fear raising the cost of doing business and losing their short-run economic growth. ”

Richards says what Panasonic is doing, and by doing so publically, is setting a precedent over the economic cost facing China for failing to make serious inroads on tackling the problem.

“If Panasonic succeeds in increasing retention of Japanese employees in China, they will have established a kind of price signal regarding the burden pollution levels place on personnel.

“By breaking this compensation payment out from the rest of the hardship premium, Panasonic is sending an important message about the real economic costs associated with pollution.”

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