2017 international geographic salary differentials - … · to support clients’ need for...
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INTERNATIONAL GEOGRAPHIC SALARY DIFFERENTIALS
2017
GLOBAL EDITION
HEALTH WEALTH CAREER
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INTRODUCTIONGeographic salary differences generally represent the market-driven pay variations between locations — domestic or international. Multinational companies, with employees in different geographic areas, often implement location pay differentials in their salary scales. Such geographic salary differentials can have a major impact on evaluating compensation plans for employers, who have to consider these pay level differences when pricing the same job in different markets.
Numerous factors influence the level of pay within a country, such as the availability (supply and demand) of qualified talent. If that talent is scarce, pay levels are higher. The competitive market also plays a significant role, and employers need to determine their desired pay position in that market. Do they want to be perceived as aggressively competitive or just one of the peers? Some organisations offer pay levels that may be lower than the general market, but their noncash benefit levels are higher — or the mix of their base salary and incentives is different than that of their peers. The general economy of the location, along with cost of living and standard of living, affect salary levels, as well.
Another variable is the career level required to staff a new operation (or expanded one), which can also have a large impact on the bottom line. For example, if the majority of the workforce falls into lower levels of the organisation, the variation in salary between two locations may not be sufficiently different to influence the company’s decision either way. But other factors may come into play, such as the local economy, quality of living, and others. However, if higher-skilled employees are necessary — for example, engineers — wider variations in pay between two locations may lead to total employment costs (the sum total of pay, benefits, mandatory contributions, and other components) that could favour one location over another.
Consequently, knowing the pay levels in different locations helps employers control costs, while ensuring adequate, competitive pay as per the respective market standards. Management may choose a lower-cost location due to significant geographic differentials in pay — or accept the higher costs and select the initial desired location. Accurate information is key to making sound, informed, rational decisions that align with the company’s strategic objectives and culture. SAMPLE
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INTRODUCTION
DIFFERENTIAL’S DIFFERENT MEANINGSBeyond the meaning of “geographic differential” as a pay difference set for the same job based on variations in cost of living or cost of labour among two or more geographical areas, “differential” can also represent:
► Area differential, which is an allowance paid to compensate expatriates for medium-term cultural and hardship factors present in the assignment country compared to the base country, or an allowance paid to domestic or expatriate employees in certain geographic areas based on different average pay levels and/or cost of living.
► Goods and services differential, which is the amount added to an expatriate’s compensation to protect purchasing power for the higher cost of goods and services in an assignment location compared to the base country.
► Housing differential, which is an allowance to compensate for differences between local host-country housing costs and the costs for similar housing in the base country. The allowance typically covers both rent and utilities.
► Negative differential, which is the result when the cost of goods and services or housing is higher in the home country than in the assignment location.
THE MOBILITY FACTORWith these definitions in mind, employee mobility is another consideration for employers when designing pay packages. Going on assignment to a foreign city means learning a new language, tasting exotic foods, making new friends — and usually paying more for typical goods and services. When an assignee finds the cost of living in the assignment location higher than in the home country, the company typically provides a differential that moves up or down to make up for those higher expenses. This factor is only one in a traditional international assignment package. With all the other add-ons for moving, housing, danger, spousal support, and other items, the resulting cost can significantly affect the budget.
When the destination has higher costs than the potential assignee’s home country, employers have options beyond relocating the employee and the accompanying family. Some employers hire a local-national employee. Knowing the pay level for that individual, as long as the candidate has the qualifications and skills, could prove cost-effective in the long run. Other employers might still relocate an employee from elsewhere, but use a modified pay package, basing it on the local salary levels.
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However, some employee relocations involve sending an employee from a high-cost location to a low-cost location. In that case, there would be a “negative” differential. Beyond price, currency fluctuation and inflation complicate matters. To keep purchasing power “whole” (comparable to home) during an assignment, the differential moves up or down to protect purchasing power, thus equalising price differences. However, many companies ignore the negative differential that should be subtracted from the pay package, instead allowing the assignee to keep the windfall. Others take a deduction from another allowance (such as housing) or total compensation, as deducting a negative differential keeps the individual’s purchasing power comparable to what was enjoyed at home.
IMPLEMENTING DIFFERENTIALSNo matter the meaning of differential within an organisation’s pay plan, most multinational employers develop different salary structures in different locations when there is a geographic difference in salary levels. This practice is of particular assistance in reducing employment costs if the number of employees in that location is significant. Other employers may choose to make individual adjustments to base salary, which works best if there are only a handful of employees in diverse locations. And others, as is the case for international assignees, provide supplemental differential payments with a percentage adjustment added to the employee’s base salary.
To support clients’ need for accurate, timely salary differences in major world regions, Mercer’s 2017 International Geographic Salary Differentials online tool provides:
► Information on gross pay and net pay variations across 86 countries.
► Insights into pay levels in different countries, helping human resources professionals identify labour cost-advantages within various locations and make equitable, competitive salary allocations.
► Highlights of domestic geographic differentials within 17 countries, supporting employer decisions to move or hire employees within a country.
► Comparison of gross pay (annual total cash) and net pay for seven employee levels — executive, upper-middle management, lower-middle management, senior professional, junior professional, skilled para-professional, and general para-professional — presenting the spectrum of career levels.
Because economic and political conditions can change rapidly, we recommend that you consult your local Mercer office for details before taking action based on the geographic salary differentials in this publication.
INTRODUCTION
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MAKING SENSE OF DIFFERENTIALS TABLESGEOGRAPHIC SALARY DIFFERENTIALSThe following table presents an example of the salary differentials between Argentina and other countries, along with the gross pay differences of Argentina.
The differentials in this table are expressed as percentages. A positive differential indicates that pay in the compared country is greater than the base country, while a negative differential indicates the reverse. To compute the pay in the compared country, add 100 to the differential and divide the result by 100. Then, multiply the resulting factor with the base country pay.
For example:
► The gross pay of lower-middle management in Bolivia is 9% higher than their peers in Argentina, or 9% higher than USD73,490.
ARGENTINA — ANNUAL SALARIES AND GEOGRAPHIC DIFFERENTIALS — MEDIAN TOTAL CASH, 2016
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ARGENTINA — ANNUAL SALARIES AND GEOGRAPHIC DIFFERENTIALS — MEDIAN TOTAL CASH, 2016
MAKING SENSE OF DIFFERENTIALS TABLES
► The net pay (married, two children) of an executive in Brazil is 3% lower than their peers in Argentina, or 3% lower than USD131,050.
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MAKING SENSE OF DIFFERENTIALS TABLES
DOMESTIC SALARY DIFFERENTIALSThe domestic salary differentials indicate how gross pay varies between several locations within a given country. The analysis includes 17 countries; the number of cities varies from country-to-country. These tables present the gross salary for seven employee levels, in both local currency and USD, and the salary differentials for National and Prime cities. The two domestic differentials help users understand pay differences among different cities within a country.
For example:
► The gross pay of an executive in the Rio de Janeiro is 3% higher than their peers in Brazil as a whole, or 3% higher than USD172,552.
BRAZIL – DOMESTIC SALARY DIFFERENTIALS - 2016
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MAKING SENSE OF DIFFERENTIALS TABLES
BRAZIL – DOMESTIC SALARY DIFFERENTIALS - 2016
► The gross pay of an executive in the Rio de Janeiro is 1% higher than their peers in Sao Paulo, or 1% higher than USD176,367.
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ABOUT THIS REPORTThis section provides information on the methods of collecting, collating, and analysing data for this online tool. Below are notes on exceptions and exclusions in the data and a list of data sources, relevant equations, and currency conversions rates. Readers will also find a glossary of key terms.
METHODOLOGYThe quality and accuracy of the International Geographic Salary Differentials online tool is based on Mercer’s globally consistent methodology of defining pay and positions, along with a vast, country-by-country database of compensation and taxation data.
The tool presents pay differential data for seven employee levels:
► Executive
► Upper-middle management
► Lower-middle management
► Senior professional
► Junior professional
► Skilled para-professional
► General para-professional
Each employee level matches a position class (PC) using Mercer’s International Position Evaluation (IPE) methodology. This approach categorises jobs into a defined number of specific PCs that represent a narrow band of positions with similar responsibility levels. The report considers data for seven PCs (60, 57, 54, 51, 48, 45, and 42) for seven employee levels.
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MERCER’S SALARY DATA METHODOLOGYData are compiled from Mercer’s 2016 Total Remuneration Surveys, which gather salary data through a standardised, worldwide survey process. The analysis presents figures from an all-industry perspective and does not consider industry-specific or regional differences. The Mercer WIN® regression methodology calculates market statistics (quartiles, mean, and median) for each PC in a selected market — indicating how each organisation pays at that PC. The amount of survey data provided by each organisation does not influence the results, as each organisation counts once in each PC.
Regression analysis is a common tool for analysing data gathered in salary surveys. When a company creates or reviews its salary structures, regression analysis defines the level of median pay relative to a pay grade. The development of a compensation structure from surveys helps employers offer pay levels within a range of what the outside competitive labour market would pay — without overpaying or underpaying employees. By comparing the company’s current structure to the market — usually on an annual basis — compensation administrators can determine the amount of overall movement necessary to bring the current salary structure up to date, if required.
Typical regression analysis is useful for matching, verifying, or predicting salary levels. It displays a “regression line,” or “line of best fit,” in a scatterplot, or mathematical “picture” of the relationship between two variables by plotting (x, y) points. Within the scatterplot, the regression line moves through the centre of the data set, minimising the distances between the points on the line and the data above and below the line.
Mercer’s organisation-weighted regression methodology fine-tunes that analysis by using job level grouping or banding (more than one line) to create multiple market regression lines. This methodology offers a better representation of different pay patterns by employee level to account for the fact that management and executive levels have different pay patterns than professionals and para-professionals.
Consequently, the use of banding better aligns the regression with the actual salary data. In addition, Mercer’s organisation-weighted regression better reflects company policy and improves year-over-year consistency in survey market data. It equally weights each organisation in the market to eliminate dominance and outliers.
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REGRESSION METHODOLOGY RECAP
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January 19, 2015
0
20,000
40,000
60,000
80,000
100,000
120,000
39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57
Position Class
Bas
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Org Weighted Regressed 25th %ile Org Weighted Regressed Median Org Weighted Regressed 75th %ile
Org Weighted Median Org Weighted 25th to 75thI
Step 1:
Actual market medians and quartiles are calculated for each PC
Step 2: A regression line based on the
actual market medians by PC is created
Step 3: Quartile regression lines are
created based on quartile-to-median ratios
Step 4: Data density and quality checks are performed to ensure Mercer
data accurately represents market
The Mercer regression methodology involves four basic steps.
Step 1: Actual market medians and quartiles are calculated for each PC.
Step 2: A regression line based on the actual market medians by PC is created.
Step 3: Quartile regression lines are created based on quartile-to-median ratios.
Step 4: Data density and quality checks are performed to ensure Mercer data accurately represents the market.
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ABOUT THIS REPORT
EXCEPTIONS AND NOTES ► Data for China, Russia, Kazakhstan, and Ukraine come from only one city per country — Beijing, Moscow, Almaty, and Kiev,
respectively — represented as China–Beijing, Russia–Moscow, Kazakhstan–Almaty, and Ukraine–Kiev throughout the report (except the domestic salary differentials section).
► Some of the net pay values for a married couple with two children in Australia, Ireland, Lebanon, Luxembourg, and New Zealand are higher than gross pay. This result is due to a family allowance granted by the government in these countries. The family allowance is higher than the total hypothetical tax amount used in the analysis.
► An “en-dash (–)” represents the missing data points in the tables; the countries with missing data are excluded from the graphs.
► Statistics include only data for incumbents on the organisation’s country payroll (not expatriates), with the exception of Middle Eastern countries, where local employment standards require otherwise.
► Data are unavailable in the geographic salary differentials section for general para-professionals in Denmark, Moldova, Trinidad and Tobago, and Uruguay, and for upper-middle managers in Moldova.
► The survey scope is different for different countries. So, the differentials are presented either by state/province, Region or by City.
NET INCOME AND TAX CALCULATIONSNet figures used Mercer’s 2016 Personal Tax Reports and Hypothetical Personal Tax Calculator. The tax assumptions in this report reflect typical deductions within two different modules: first, an employee who is a working individual (that is, single with no children), and second, a married couple with two children. Some countries (for example, Canada, China, Switzerland, and the US) have governmental subunits that impose taxes. Taxation levels vary significantly in these countries, depending on local and regional taxes.
The report applied local tax rates that represent the national average tax rate to compare differentials across countries. That is, the analysis used local tax rates in the city of Beijing, the province of Ontario, the canton of Geneva, and the state of Illinois as selected local tax rates for China, Canada, Switzerland, and the US, respectively.
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ABOUT THIS REPORT
CURRENCY CONVERSION RATES, USD, AS OF NOVEMBER 4, 2016
Notes: These exchange rates are rounded to two significant digits. Data in the table was prepared using higher degrees of precision.
COUNTRY CURRENCY CONVERSION
AMERICAS CODE USD 1=
ARGENTINA ARS 15.18
BOLIVIA BOB 6.92
BRAZIL BRL 3.20
CANADA CAD 1.32
CHILE CLP 663.32
COLOMBIA COP 2,923.58
COSTA RICA CRC 552.43
DOMINICAN REPUBLIC DOP 46.21
ECUADOR USD 1.00
GUATEMALA GTQ 7.50
HONDURAS HNL 22.73
MEXICO MXN 18.97
PANAMA PAB 1.00
PERU PEN 3.39
PUERTO RICO USD 1.00
TRINIDAD AND TOBAGO TTD 6.70
UNITED STATES USD 1.00
URUGUAY UYU 28.15
VENEZUELA VEF 9.99
COUNTRY CURRENCY CONVERSION
ASIA PACIFIC CODE USD 1=
AUSTRALIA AUD 1.31
CHINA–BEIJING CNY 6.72
HONG KONG HKD 7.76
INDIA INR 66.70
INDONESIA IDR 13,025.40
JAPAN JPY 103.54
MALAYSIA MYR 4.17
NEW ZEALAND NZD 1.40
PAKISTAN PKR 104.60
PHILIPPINES PHP 48.35
SINGAPORE SGD 1.38
SOUTH KOREA KRW 1,125.64
SRI LANKA LKR 146.98
TAIWAN TWD 31.57
THAILAND THB 35.03
VIETNAM VND 22,341.99SAMPLE
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CURRENCY CONVERSION RATES, USD, AS OF NOVEMBER 4, 2016, CONTINUED
COUNTRY CURRENCY CONVERSION
EMEA CODE USD 1=
ALGERIA DZD 110.11
ANGOLA AOA 165.89
AUSTRIA EUR 0.91
AZERBAIJAN AZN 1.61
BAHRAIN BHD 0.38
BELGIUM EUR 0.91
BULGARIA BGN 1.77
CROATIA HRK 6.80
CZECH REPUBLIC CZK 24.47
DENMARK DKK 6.74
EGYPT EGP 8.88
ESTONIA EUR 0.91
FINLAND EUR 0.91
FRANCE EUR 0.91
GERMANY EUR 0.91
GHANA GHS 3.98
GREECE EUR 0.91
HUNGARY HUF 278.06
IRELAND EUR 0.91
ISRAEL ILS 3.81
ITALY EUR 0.91
JORDAN JOD 0.71
COUNTRY CURRENCY CONVERSION
EMEA CODE USD 1=
KAZAKHSTAN–ALMATY KZT 332.25
KENYA KES 101.31
LATVIA EUR 0.91
LEBANON LBP 1.00
LITHUANIA LTL 0.91
LUXEMBOURG EUR 0.91
MOLDOVA MDL 19.86
MOROCCO MAD 9.82
NETHERLANDS EUR 0.91
NIGERIA NGN 315.92
NORWAY NOK 8.16
OMAN OMR 0.38
POLAND PLN 3.90
PORTUGAL EUR 0.91
QATAR QAR 3.64
ROMANIA RON 4.07
RUSSIA–MOSCOW RUB 62.61
SAUDI ARABIA SAR 3.75
SERBIA RSD 111.47
SLOVAKIA EUR 0.91
SLOVENIA EUR 0.91
SPAIN EUR 0.91
Notes: These exchange rates are rounded to two significant digits. Data in the table was prepared using higher degrees of precision.
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CURRENCY CONVERSION RATES, USD, AS OF NOVEMBER 4, 2016, CONTINUED
COUNTRY CURRENCY CONVERSION
EMEA CODE USD 1=
SWEDEN SEK 8.79
SWITZERLAND CHF 0.99
TUNISIA TND 2.23
TURKEY TRY 3.07
COUNTRY CURRENCY CONVERSION
EMEA CODE USD 1=
UKRAINE–KIEV UAH 25.72
UNITED ARAB EMIRATES AED 3.67
UNITED KINGDOM GBP 0.81
Notes: These exchange rates are rounded to two significant digits. Data in the table was prepared using higher degrees of precision.
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DATA SOURCES, 2016
COUNTRY DATA SOURCES, 2016 NUMBER OF PARTICIPANTS
AMERICAS
ARGENTINA AR: Total Remuneration Survey (November) 437
BOLIVIA BO: Total Remuneration Survey (June) 37
BRAZIL BR: Total Remuneration Survey (May) 478
CANADA CA: Total Remuneration Survey (April) 832
CHILE CL: Total Remuneration Survey (May) 357
COLOMBIA CO: Total Remuneration Survey (May) 345
COSTA RICA CR: Total Remuneration Survey (June) 115
DOMINICAN REPUBLIC DO: Total Remuneration Survey (June) 59
ECUADOR EC: Total Remuneration Survey (May) 111
GUATEMALA GT: Total Remuneration Survey (June) 93
HONDURAS HN: Total Remuneration Survey (June) 44
MEXICO MX: Total Remuneration Survey (May) 723
PANAMA PA: Total Remuneration Survey (May) 149
PERU PE: Total Remuneration Survey (May) 242
PUERTO RICO PR: Total Remuneration Survey (June) 52
TRINIDAD AND TOBAGO TT: Total Remuneration Survey (June) 29
UNITED STATES US: Total Remuneration Survey (March) 1440
URUGUAY UY: Total Remuneration Survey (July) 106
VENEZUELA VE: Total Remuneration Survey (May) 166
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DATA SOURCES, 2016, CONTINUED
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COUNTRY DATA SOURCES, 2016 NUMBER OF PARTICIPANTS
ASIA PACIFIC
AUSTRALIA AU: Total Remuneration Survey All Industries (July) 706
CHINA–BEIJING CN-Beijing: Total Remuneration Survey Office (June) 917
HONG KONG HK: Total Remuneration Survey (July) 490
INDIA IN: Total Remuneration Survey (June) 772
INDONESIA ID: Total Remuneration Survey (June) 477
JAPAN JP: Total Remuneration Survey (June) 563
MALAYSIA MY: Total Remuneration Survey (June) 524
NEW ZEALAND NZ: Total Remuneration Survey All Industries (July) 233*
PAKISTAN PK: Total Remuneration Survey (June) 143**
PHILIPPINES PH: Total Remuneration Survey (June) 374
SINGAPORE SG: Total Remuneration Survey (June) 775
SOUTH KOREA KR: Total Remuneration Survey (July) 496
SRI LANKA LK: Total Remuneration Survey (June) 64
TAIWAN TW: Total Remuneration Survey (July) 399
THAILAND TH: Total Remuneration Survey (June) 511
VIETNAM VN: Total Remuneration Survey (June) 554
Notes: *The 2016 counts are based on TRS Cross industries and related Supplements.**One company has provided data only for supplement survey.
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DATA SOURCES, 2016, CONTINUED
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COUNTRY DATA SOURCES, 2016 NUMBER OF PARTICIPANTS
EMEA
ALGERIA DZ: Total Remuneration Survey (May) 81
ANGOLA AO: Mercer/Global Remuneration Survey:Total Remuneration Survey (April) 51
AUSTRIA AT: Total Remuneration Survey (April) 171
AZERBAIJAN AZ: Total Remuneration Survey (May) 32
BAHRAIN BH: Total Remuneration Survey (May) 52
BELGIUM BE: Total Remuneration Survey (April) 268
BULGARIA BG: Total Remuneration Survey (May) 226
CROATIA HR: Total Remuneration Survey (April) 77
CZECH REPUBLIC CZ: Total Remuneration Survey (April) 220
DENMARK DK: Total Remuneration Survey (June) 245
EGYPT EG: Total Remuneration Survey (May) 105
ESTONIA EE: Total Remuneration Survey (May) 61
FINLAND FI: Total Remuneration Survey (June) 219
FRANCE FR: Total Remuneration Survey (April) 503
GERMANY DE: Total Remuneration Survey (April) 516
GHANA GH: Mercer/Global Remuneration Survey:Total Remuneration Survey (June) 100
GREECE GR: Total Remuneration Survey (April) 152
HUNGARY HU: Total Remuneration Survey (April) 161
IRELAND IE: Total Remuneration Survey (April) 154
ISRAEL IL: Total Remuneration Survey (June) 54
ITALY IT: Total Remuneration Survey (April) 377
JORDAN JO: Total Remuneration Survey (May) 51
KAZAKHSTAN–ALMATY KZ: Total Remuneration Survey (April) 98
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DATA SOURCES, 2016, CONTINUED
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COUNTRY DATA SOURCES, 2016 NUMBER OF PARTICIPANTS
EMEA
KENYA KE: Mercer/Global Remuneration Survey:Total Remuneration Survey (July) 119
LATVIA LV: Total Remuneration Survey (May) 182
LEBANON LB: Total Remuneration Survey (May) 51
LITHUANIA LT: Total Remuneration Survey (May) 102
LUXEMBOURG LU: Total Remuneration Survey (April) 35
MOLDOVA MD: Total Remuneration Survey (April) 15
MOROCCO MA: Total Remuneration Survey (May) 126
NETHERLANDS NL: Total Remuneration Survey (April) 309
NIGERIA NG: Mercer/Global Remuneration Survey:Total Remuneration Survey (June) 152
NORWAY NO: Total Remuneration Survey (July) 197
OMAN OM: Total Remuneration Survey (May) 55
POLAND PL: Total Remuneration Survey (April) 410
PORTUGAL PT: Total Remuneration Survey (April) 304
QATAR QA: Total Remuneration Survey (May) 135
ROMANIA RO: Total Remuneration Survey (April) 190
RUSSIA–MOSCOW RU: Total Remuneration Survey (April) 291
SAUDI ARABIA SA: Total Remuneration Survey (May) 325
SERBIA RS: Total Remuneration Survey (April) 110
SLOVAKIA SK: Total Remuneration Survey (April) 105
SLOVENIA SI: Total Remuneration Survey (April) 60
SPAIN ES: Total Remuneration Survey (April) 371
SWEDEN SE: Total Remuneration Survey (July) 375
SWITZERLAND CH: Total Remuneration Survey (April) 263
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DATA SOURCES, 2016, CONTINUED
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COUNTRY DATA SOURCES, 2016 NUMBER OF PARTICIPANTS
EMEA
TUNISIA TN: Total Remuneration Survey (May) 61
TURKEY TR: Total Remuneration Survey (May) 251
UKRAINE–KIEV UA: Total Remuneration Survey (April) 133
UNITED ARAB EMIRATES AE: Total Remuneration Survey (May) 428
UNITED KINGDOM UK: Total Remuneration Survey (April) 529
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DATA SOURCES, DOMESTIC DIFFERENTIALS FOR CHINA, 2016
OTHER DATA SOURCES
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COUNTRY DATA SOURCES, 2016 NUMBER OF PARTICIPANTS
CHINA
CN: Total Remuneration Changsha All Industries Survey (June) 123
CN: Total Remuneration Chengdu All Industries Survey (July) 166
CN: Total Remuneration Chongqing All Industries Survey (July) 173
CN: Total Remuneration Dalian All Industries Survey (July) 235
CN: Total Remuneration Guangdong All Industries Survey Office (June) 694
CN: Total Remuneration Hangzhou/Ningbo All Industries Survey (July) 187
CN: Total Remuneration Hefei/Wuhu All Industries Survey (June) 133
CN: Total Remuneration Nanjing All Industries Survey (June) 208
CN: Total Remuneration Qingdao All Industries Survey (July) 173
CN: Total Remuneration Shanghai All Industries Survey Office (June) 1046
CN: Total Remuneration Shenyang/Changchun All Industries Survey (July) 189
CN: Total Remuneration Suzhou/Kunshan All Industries Survey (June) 289
CN: Total Remuneration Tianjin All Industries Survey (June) 201
CN: Total Remuneration Wuhan All Industries Survey (July) 289
CN: Total Remuneration Wuxi All Industries Survey (June) 164
CN: Total Remuneration Xiamen/Fuzhou All Industries Survey (July) 149
CN: Total Remuneration Xian All Industries Survey (July) 329
DATA SOURCES, 2016
Mercer's Cost–of–Living (COL) Survey, September 2016
Mercer's Hypothetical Tax Calculator, 2016
Mercer Personal Tax Report, 2016
Mercer's Quality–of–Living (QOL) Survey, September 2016
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COMPENSATION TERMSANNUAL BASE SALARY (ABS)Monthly base salary multiplied by the number of months per yearthat salary is paid (according to company policy).
ANNUAL GUARANTEED CASH (AGC)Annual base salary plus guaranteed allowances, which includemeal allowance, vehicle allowance, and so on.
ANNUAL TOTAL CASHCOMPENSATION (ATC)Annual base salary (ABS) plus annual guaranteed cash (AGC) andshort- term incentives, which include bonus (for example, bonus,sales commission, profit sharing) but exclude share options. Thefigures reported include the actual award amounts receivedover last 12 months.
ANNUAL TOTAL REMUNERATION (ATR)Annual total cash (ATC) plus long-term incentives. Also known asAnnual Total Direct Compensation.
ANNUAL TOTAL EMPLOYMENT COST(TEC)The total fixed cost of an employee’s package to the employer,including base salary, allowances, motor vehicles (benefitvehicles only), car allowances (benefit allowances only),
company superannuation associated with fixed cost, carparking, leave loading, and all other benefits and associatedfringe benefit tax. It excludes STIs and long-term incentives,staff on-costs such as workers’ compensation and payroll tax,bonuses, and/or commissions, and superannuation associatedwith variable cost.
ALLOWANCESSalary supplements paid to employees to cover jobrequirements, with reimbursement usually based on actualcosts. Typical allowances, depending on country or companyculture, might include allowances for maternity, festival,transition, meal, car, childcare, family, vacation, sickness,housing, and others. They can be either paid out in cash, asan addition to the base salary or in the form of vouchers orcoupons and may vary significantly from country to country.
COMPENSATION MANAGEMENTThe process of engaging with line managers regarding theirrecommendations for individual pay increases and bonuses. Itrelies on managers being guided towards fair and consistentawards with robust market data and being enabled usingtechnology. Approaches vary from directional (limited managerdiscretion) to discretionary.
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COMPENSATION PLANNINGThe process of modelling company and market data to buildinsights into how budgets should be distributed within thecompany for compensation review. It may be a top-downprocess linked to affordability and market movement, or abottom-up process linked to competitive position and individualperformance, or both. Also see Salary Increase.
COMPENSATION STRATEGY/PHILOSOPHY/POLICYThe principles that guide the design, implementation andadministration of an organisation’s compensation programme.The strategy ensures that a compensation programme,consisting of both pay and benefits, supports an organisation’smission, goals, and business objectives. It may also specify whatprogrammes will be used and how they will be administered.The philosophy ensures that a compensation programmesupports an organisation’s culture. The policy ensures thata compensation programme carries out the compensationstrategy while supporting the compensation philosophy.
COMPETITIVE PAY POLICYThe strategic decision an organisation makes about whichlabour markets to use as comparison groups and how to set paylevels for those groups. After choosing the comparison group,the organisation decides its market position with respect to thegroup.
EQUITYEXTERNAL EQUITYA measure of an organisation’s pay levels, bands, or “goingmarket rates” compared to that of its competitors. As a fairnesscriterion, external equity implies that the employer payswages that correspond to prevailing external market rates, asdetermined by market pricing.
INTERNAL EQUITYA fairness criterion that directs an employer to establishwage rates that correspond to each job’s relative value to theorganisation.
EXTERNAL COMPETITIVENESSA comparison of the organisation’s pay structure with itscompetitors.
FIXED ALLOWANCESee Allowances.
FULL-TIME EQUIVALENTS (FTES)The number of full-time equivalent (FTE) employees includeslocals, local plus, expatriates, union personnel, and contractstaff. Seasonal staff are not included. An FTE of 1.0 is equivalentto a full-time worker, while an FTE of 0.5 signals half of afull-time worker.
GEOGRAPHIC DIFFERENTIALA pay difference set for the same job based on variations incost of living or cost of labour among two or more geographicalareas.
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GUARANTEED CASH ALLOWANCESCash allowances that are guaranteed to the employeeregardless of their performance. Also see Allowances.
GROSS PAYThe total amount of money earned by an employee in a specificperiod, before tax and other deductions. Also see Net Pay.
INCENTIVES
SHORT-TERM INCENTIVE (STI)Rewards relating to the performance against selected criteriaover a period of one year or less. These include performance related bonuses, sales bonuses, sales commissions, profitsharing schemes, other bonuses, and exceptional premiums.
► Actual Short-term Incentive: The performance-based variable bonus amount paid out in the previous 12 months. This figure may be provided as a percentage of annual base salary or the actual award amount.
► Target Short-term Incentive: The performance-based variable bonus amount targeted to be paid for the upcoming year. This figure is displayed as a percentage of annual base salary.
► Maximum Short-term Incentive: The maximum or capped performance-based variable bonus amount. This figure is displayed as a percentage of annual base salary.
► Percentage Receiving: The percentage of employees that received a short-term incentive in the prior year.
LONG-TERM INCENTIVE (LTI)Variable pay based on measures that extend for a period of more than one year. Their role is to link the financial rewards of executives and, increasingly, broader levels of employees to the organisation’s long-term performance. They include stock/share options, stock grants, deferred cash compensation, equitybased, and cash plans.
► Performance Cash Units: Conditional grant denominated in units other than notional or actual shares, with payment contingent upon achievement of specified performance goals over a multi-year performance period. They are cashdenominated and not tied to the price of a share of stock. Although units are usually cash-denominated, their value may also be based on other constructs, such as dividends or earnings per share (EPS). Where the value of each unit is equal to 1, the incentive type is also known as “long-term cash.”
► Performance Share Units (PSUs): Conditional grant of notional or actual shares, with payment or vesting contingent upon achievement of specified performance goals over a multi-year performance period. While the number of performance shares/share units earned depends on the extent to which the performance goals are achieved, the value of each performance share/share unit depends upon the market value of the share at the end of the performance period.
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► Restricted Share Units (RSUs): Conditional grants of notional, actual or phantom shares of stock with vesting contingent upon employment for a specified period. The value of each share depends upon the market value of the share at the end of the vesting period.
► Share Appreciation Rights (SARs): SARs provide an incumbent with the appreciation in market value of the share. They may be paid out in cash, stock, or a combination of cash and stock, with no investment on the part of the incumbent required. They include phantom appreciation shares, which are awards denominated in hypothetical shares, the value of which is based on an increase in actual share value or another measure of organisation value (e.g., book value). There are three types of SARs:
► Freestanding — SAR grant that is not attached to a stock/share option.
► Limited — SAR that is exercisable only upon the occurrence of a specific event, such as a change in control.
► Tandem — SAR that is granted with a stock/share option.The exercise of one cancels the other.
► Stock/Share Options: The right to purchase company shares at a stated price (exercise price) for a defined period (option term). The exercise price is typically equal to the market price on the grant date, but may be less than or greater than the market price on the grant date.
LONG-TERM CASHA pre-determined cash amount paid out contingent upon achievement of specified performance goals over a multi-year performance period.
MARKET PRICINGThe technique of creating a job-worth hierarchy based on the “going rate” for benchmark jobs in the labour market(s) relevant to the organisation. After a preliminary hierarchy is established based on market pay levels for benchmark jobs, this method considers job content to ensure internal equity. The process then “slots” all other jobs into the hierarchy based on whole job comparison.
NET PAYThe cash-in-hand of an employee, after tax and other deductions. Also see Gross Pay.
SALARY INCREASEThe total increase to salary that may include cost-of-living/ inflation and merit increases in the financial year and exclude promotion and/or market adjustment.
SALARY INCREASES EXCLUDING ZEROESExcluding zeroes represents salary increases of companies that provide an increase in pay (excluding pay freezes).
SALARY INCREASES INCLUDING ZEROES Including zeroes represents salary increases of all companies, including those with pay freezes.
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REAL SALARY INCREASEAn increase in salary after factoring in the effects of inflation onpurchasing power.
SALARY RANGEThe established annual range for a position (minimum, control point, maximum) reported only for those organisations that have a formal salary structure.See pay range.
SALARY RANGE MINIMUMThe established minimum (lowest) rate of the salary range for the position.
SALARY RANGE MAXIMUMThe established maximum (highest) rate of the salary range for the position.
SALARY STRUCTUREThe hierarchy of job grades and pay ranges established within an organisation that may be expressed in terms of job grades, job evaluation points, or policy lines.
SALARY STRUCTURE ADJUSTMENTAn adjustment in the salary structure expressed as the percentage by which the sum of all midpoints of the new structure exceed (or lag) the corresponding sum of the midpoints of the old structure.
TURNOVERVOLUNTARY TURNOVERThe percentage of employees who resigned voluntarily during the 12-month reporting period, excluding normal retirement. This does not include contractors or volunteer staff.
INVOLUNTARY TURNOVERThe percentage of employees who were retrenched or dismissed by the organisation during the 12-month reporting period. This includes contract staff that were retrenched or dismissed outside the terms of their contract (that is, it does not include contract staff that left the organisation merely because their contracts expired). All redundancies are under involuntary terminations, regardless of whether they were voluntary or involuntary redundancies.
VARIABLE CASHThe amount of nonfixed cash, or variable pay, which is a reward based on individual, group, or organisational performance rather than time spent on the job or the job’s value.SAMPLE
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EMPLOYEE CAREER LEVELSEXECUTIVEThese senior-most employees in the organisation generally include top executives and directors within the organisation, or employees with managerial responsibilities at the top level of a business unit or organisation. Executives focus on providing strategic vision and/or tactical/strategic direction across multiple functions or sub-functions. May also be referred to as Senior Executive or Function Head, or in the case of a sales executive Head of Sales/Marketing.
SENIOR MANAGER/UPPER-MIDDLE MANAGEMENTThese employees direct the business activities for the achievement of short- and long-term business/policy objectives and increased profit/market share. They participate in the establishment of the policies and programme within the context of the overall corporate/division goals and, where appropriate, recommend standards and set targets (may include sales, marketing, distribution, and administration). They may be heads of departments in large companies or heads of functions in smaller companies.
MANAGEMENT/LOWER-MIDDLE MANAGEMENTThese employees with important supervisory and managerial responsibilities are usually the higher levels within a business unit or organisation. Management-level employees focus on managing people and implementing policies and strategies to meet the organisation’s objectives. They typically report to senior managers and (other than sales) functional managers including finance, human resources, information technology.
PROFESSIONALTypically refers to jobs requiring a professional or technical qualification. They are individual contributors without supervisory responsibility, but may provide coaching/mentoring to less-experienced staff. They typically hold a university degree or full-trade equivalent.
PROFESSIONAL — SENIORIndividual contributor who is fully proficient in applying established standards; knowledge acquired from several years of experience in particular area. Works independently; may mentor or coach other professionals.
PROFESSIONAL — JUNIORIndividual contributor who works under direct supervision. May be entry level or have limited experience in their field of expertise.
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PARA-PROFESSIONALTypically includes roles that are semi-skilled or unskilled with no supervisory or management responsibility. They do not require a university degree, but may require formal professional training and certification, and may be paid on an hourly or a salaried basis.
PARA-PROFESSIONAL — WHITE COLLAR/SKILLEDThis category refers to salaried employees typically in a business support, analyst, administrative, or technical role.
PARA-PROFESSIONAL — BLUE COLLAR/GENERALPara-professional blue collar refers to production workers generally in the manufacturing sector. Collective agreements may or may not cover operations employees.
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MERCER’S TOTAL REMUNERATION SURVEYS (TRS)Mercer conducts TRS in more than 100 countries. Each TRS includes data for a set of core benchmark positions and, in many markets, industry-specific positions such as consumer goods, pharmaceuticals, and high-technology. Mercer’s TRS allows access to market data for pay and benefits, as well as the ability to generate statistics tailored to an organisation’s needs via Mercer’s online delivery tool, Mercer WIN®.
MERCER’S INTERNATIONAL POSITION EVALUATION ( IPE) SYSTEMMercer surveys around the world are based on the International Position Evaluation (IPE) system. IPE relies on evaluating positions, not the employees holding those positions — because the qualifications and performance of incumbents can differ from what positions actually require. Position evaluation is not just a tool for salary comparisons, but is also instrumental in recruiting, career planning, designing corporate structures, and dealing with expatriate compensation and planning.
Pay data within each country matches the core benchmark position structure, using Mercer’s IPE methodology — ensuring that position levels are consistently and accurately matched, regardless of the country or industry. The IPE focuses on four dimensions:
► Impact and contribution to business unit results
► Communication
► Innovation
► Required knowledge
Risk is an optional factor that may be used in high-risk industries or professions. Each factor is divided into degrees, which have individual weightings. The system facilitates a review of positions within a company, as well as across companies and industries.
POSITION CLASS TERMSPosition class (PC) is the Mercer level created using Mercer’s International Position Evaluation (IPE) system. Typical PCs for different employee levels are:
► Executive: PCs 57–62
► Management: PCs 52–57
► Professional: PCs 47–52
► Para-professional: PCs 42–47
SAMPLE JOB TITLESExecutive (PCs 57–62): Head of Organisation, Head of Operations, Head of Legal, Head of Human Resources, Head of Communications, Head of Finance, Head of Information Technology, Head of Sales & Marketing, Head of Business Development, Head of Engineering, Head of Manufacturing Head of Supply Chain, Head of Quality
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Management (PCs 52–57): Compliance Manager, Human Resources Manager, Employee Relations Manager, Payroll Manager, Finance Manager, Credit & Collections Manager, Accounting Manager, Budget Manager, IT Manager, Information Security Manager, Business Development Manager, Marketing Manager, Customer Service Manager, Purchasing Manager
Professional (PCs 47–52): Public Relations Professional, Legal Counsel, Human Resources Generalist — Specialist, Human Resources, Compensation Analyst, Benefits Analyst, Accountant, Database Administrator, Marketing Analyst , Sales Representative, Channel Sales Representative, CAD Drafter, Environmental Engineer
Para-professional (PCs 42–47): Legal Assistant, Payroll Clerk, Cashier, Accounting Clerk, Executive Secretary, Secretary, Administrative Assistant, Security Guard, Receptionist, Personal Driver, Marketing Assistant, Customer Service Representative, Carpenter, Production Worker, Warehouse Clerk
MERCER’S UNIVERSAL POSITION CODE SYSTEM® (MUPCS)Mercer’s MUPCS framework is a sophisticated, flexible position coding system used globally in Mercer TRS. Designed to reflect accurately how a company’s structure works around job families and career levels/progressions, the MUPCS framework is a robust methodology that allows consistent benchmark coding when analysing pay across borders. The “smart” aspect of MUPCS (for example, families, subfamilies, career streams, and levels) lets users analyse remuneration trends and relationships beyond the traditional one-dimensional perspective of “jobs.”
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MEAN-TO-MEAN INDEXA comparison of the mean prices (the average of the price range of each item) in the base city to host city. As a result, this index is not biased and is the best indicator of overall differences in prices between two cities, as it compares the average price range for each item both at home and abroad.
NEGATIVE DIFFERENTIALThe result when the cost of goods and services or housing is higher in the home country than in the assignment location. For example, the goods and services index would be less than 100, so that an index of 80 means that costs in the assignment location are 20% lower than those in the home country. See differential, goods and services differential and cost-of-living allowance.
MOBILITY TERMSCOST-OF-LIVING INDEXA ratio that reflects the differences in cost of living between two locations. The results are available in an index format, with the base city at 100 index points. The index compares mean prices (the average of the price range for each item) in the base city to that of the host city; differences are measured by comparing the prices of the same market basket everywhere. It can vary according to the market basket and calculation methodology used. The market basket of goods and services includes carefully selected items, consumed both at home and abroad.
GOODS AND SERVICES DIFFERENTIALThe amount added to an expatriate’s compensation to protect purchasing power for the higher cost of goods and services in an assignment location compared to the base country.
GEOGRAPHIC DIFFERENTIALA pay difference set for the same job based on variations in cost of living or cost of labour among two or more geographical areas.
HOUSING DIFFERENTIALAn allowance to compensate for differences between local host-country housing costs and the costs for similar housing in the base country. The allowance typically covers both rent and utilities.
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ABOUT MERCER At Mercer, we make a difference in the lives of more than 110 million people every day by advancing their health, wealth, and careers. We’re in the business of creating more secure and rewarding futures for our clients and their employees — whether we’re designing affordable health plans, assuring income for retirement, or aligning workers with workforce needs. Using analysis and insights as catalysts for change, we anticipate and understand the individual impact of business decisions, now and in the future. We see people’s current and future needs through a lens of innovation, and our holistic view, specialized expertise, and deep analytical rigor underpin each and every idea and solution we offer. For more than 70 years, we’ve turned our insights into actions, enabling people around the globe to live, work, and retire well. At Mercer, we say we Make Tomorrow, Today.
Mercer LLC and its separately incorporated operating entities around the world are part of Marsh & McLennan Companies, a publicly held company (ticker symbol: MMC) listed on the New York, Chicago, and London stock exchanges.
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