world pay report final 090908

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© 2008 Hay Group. All rights reserved. www.haygroup.com

World Pay Report

Global management spending powerSeptember 2008



9 September 2008 page 2 of 12 www.haygroup.com

Global overview – senior management buying power




The global talent questThe market for management talent is now undoubtedly global. At Hay Group

we consistently see developments in one region having a flow-on effect toothers – whether it is the rise of the Indian rupee impacting on salaries in the

Middle East, where much management talent is sourced from the

subcontinent, or China’s white-hot economy pulling up-and-coming managers

away from the established markets of Western Europe.

The factors that influence individuals’ decisions on where they pursue their

careers are many, but a key one is the powerful link between earning capacity

and lifestyle. The World Pay Report examines the average salary of a

management level employee (Hay Reference Level 20, roughly equivalent to a

head of department or function in a large multinational company), applies the

relevant tax rate for that salary, and subtracts a generic ‘cost of living’

measure, to reach a ranking of the relative spending power of managers in 51countries around the world.

Overall findingsManagers in the fast-growth economies of the Middle East, Asia, and Eastern

Europe tend to have the highest spending capacity. The demand for

management talent far outstrips supply in these markets, meaning that

companies need to compete with developed economies for the talent they

need. At the same time, the cost of living is determined more by local factors,

keeping the relative value of management salaries high.

Spending power of emerging economies continues to grow In general, managers’ spending power appears to have grown over the past

year, even once the potentially inflationary impact of the drop in the US dollar

is taken into account1. Not surprisingly, the highest growth in spending power

is usually correlated to a growth in the economy of that country. As the global

economic slowdown continues to bite, we anticipate the growth of spending

power to slow. This may also be exacerbated by the rising cost of food, petrol

and (in some key markets such as the Middle East) accommodation.

1Year-on-year comparisons for individual countries must be treated with

caution due to the complexities introduced by the need to convert to a common

currency (the US dollar) and therefore the impact of fluctuations in value of

local currencies against the US dollar.




A note on methodologyHay Group’s World Pay Report was compiled by comparing detailed cross-

country salary information from Hay Group PayNet. Data in PayNet is basedon Hay Group’s global methodologies for measuring job size and benefit

values.

The study used Hay Group’s universal definition of what constitutes a

‘manager’, which ensures that results are consistent around the globe. Cost of

living and tax were then taken into account to reveal disposable income levels

– the true purchasing power of executive salaries – for 51 countries in North

America, South America, Africa, Europe and Asia Pacific. The spending

power of managers in each country was then indexed, using the spending

power of USA managers as the base line.

All local currency figures were converted to US dollars for purposes of comparison. While the study also shows findings from the 2007 World Pay

Report , year-on-year comparisons need to be treated with caution as

fluctuations in the value of local currencies against the USD can cause

anomalies.




Region and country trends

Asia Senior managers in Hong Kong continue to dominate the disposable income

rankings in Asia, with spending power almost double that of their US

counterparts. This international trade and finance center traditionally enjoys

the highest pay – about a quarter more than other Asian countries – coupled

with low taxes. Thailand, China, Singapore and Malaysia also fall into the top

half of the rankings, while the more developed economies of South Korea and

Japan line up with their counterparts from Western Europe and North

America. India is the anomaly, with managerial spending power roughly

equivalent to that of the US.

Charlotte Park of Hay Group Asia said: “The shortage of management talent

in China’s booming economy means companies need to pay over the odds to

find and keep management talent, in comparison with more developed markets

such as Singapore. In addition, the rise in cost of living in Singapore has also

chipped away at managerial spending power.

“By contrast, disposable income in India is low relative to other emerging

economies , making India a value for money, high-quality talent destination for

employers. However, with a GDP growing at a fast clip and an average salary

increase of 14 per cent, it is likely that disposable income of managers will

continue to grow for the next few years, even taking a high inflation rate into

account.

“Indonesia is coming off a low base, and still languishes near the bottom of the

global rankings. However, the shortage of experienced management-level

employees in the country has allowed local managers to demand higher wages,

and we may well see this picture start to change in coming years.”

Middle East The oil-driven economies of the Middle East are all towards the top of the

table, with Bahrain trailing at 13. Leading the table is Qatar, with spending

power almost two and a half times that of US managers. This is despite a

strong increase in cost of living, which has been more than matched by the

increase in wages.

As the Gulf economies diversify out of the traditional oil and gas sectors, the

demand for top talent continues to drive salaries higher. Vijay Gandhi of Hay

Group Middle East said: “We are not witnessing economies in the Gulf region

of Middle East going through a credit crunch. Although their disposable

income has fallen over the last year, managers in most of the Gulf countries

continue to be at the top of the table. However, even at these salary levels, it’s

becoming difficult for employers to recruit the ‘right’ talent and retain existing

top managers, who keep getting lucrative job offers within the region. On

average, over 80 per cent of workforce in Gulf region are expatriates and as




economies continue to expand employers are finding there is a shortage of

supply.

“Going forward, we are not going to witness a paradigm shift in rankings of

the Gulf countries in the World Pay Report any time soon. Senior managers

continue to get a salary increase of between 15 to 20 per cent, which is very

aggressive compared to most other countries.”

North America In line with other developed economies, the US is ranked firmly towards the

bottom of the table. However, says Iain Fitzpatrick of Hay Group USA, there

are other factors that need to be considered.

“A management role at this level in the US is likely to be significantly further

down the company hierarchy than a similar role in an emerging economy,” hesaid. “Managers at this level in the US are likely to be the head of a division

or function, such as the head of marketing or HR. In a smaller economy, they

may well be at CFO or even CEO level.”

This means that managers working at this level in the US are more likely to be

mid-career rather than senior, and will have more prospects for career

advancement within their organization. However, there are many for whom

the lure of a tax-free salary in the UAE or a chance to gain valuable experience

in the fast-growth economy of China may be irresistible.

“US companies need to recognize that their competitors are no longer their

neighbors,” said Iain Fitzpatrick. “Companies from all around the world are

targeting US management talent. As the credit crunch continues to bite, US

organizations have to consider whether they should also look beyond US

borders for talent, and what they might need to do to counteract the potential

appeal of expatriate life.”

Tom McMullen of Hay Group US said: “In comparing US spending power to

the hot developing markets of the Middle East, Asia, Eastern Europe and Latin

America, we can see an even greater need for a focus on talent management,

succession management and retention of talent in this country. US

organizations would also be well served to ensure that a higher share of their

leadership and talent development investments are channeled to thesedeveloping markets, where there is a high premium paid for management

talent and where the available bench of succession candidates is much more

limited.”

Hay Group also expects to see US companies placing a greater emphasis on

effective talent management to differentiate themselves from the competition –

particularly as many organizations face a shrinking capacity to compete on

pay, thanks to the credit crunch.




“More organizations will follow the lead of the best performing companies

and develop more consistent, centralized reward systems and planned career

assignments,” said Tom McMullen. “This allows employees to gain the globalexperience needed to make their organization a stronger player on the world

stage, without losing valuable talent to their competitors.”

Western Europe Managers in Western European economies tend to have spending power

towards the middle to lower range. The UK registers towards the bottom of

the table, reflecting relatively high tax and cost of living coupled with a slower

rate of growth in the economy than developing economies.

Peter Christie from Hay Group UK said: “UK companies are generally quite

sophisticated in their analysis of pay market movements, but are likely to be

constrained by tightening budgets over the coming year and greater difficultyin passing on higher wage costs through higher prices. As a result, pay

increases are more likely to be driven by what the company can afford, given

its business priorities and market position, than the amount it may need to

compete in the market.”

“This means companies will need to get smarter about how they allocate their

resources, as their budgets tighten. Best performing companies will carefully

target pay increases to key roles and high-performing individuals, and we also

expect to see a greater focus on bonuses and other short-term incentives.”

Austria, Germany and Switzerland perform relatively well, all ranking towards

the top of the European countries for relative spending power.

“Managers’ spending power in Germany has remained relatively robust, with

wage increases keeping pace or even exceeding inflation. Over the last two

years we have seen the market at this level become much more dynamic,” said

Siegmar Schultz of Hay Group Germany.

Central and Eastern Europe The gap between the spending power of managers in Central and Eastern

Europe and Western Europe has continued to widen as predicted in last year’s

World Pay Report , with a number of CEE economies not only staying at the

top of the table but also showing strong growth over last year. Even once thepotential impact of currency fluctuations is taken into account, the trend

towards growth in managerial spending power is strong.

Scott Marlowe from Hay Group Czech Republic said: “The strong growth in

managers’ pay in most CEE countries is fueled largely by what is perceived to

be a significant shortage of management talent in the CEE markets. There are

certainly no signs of a slowdown in pay nor of an end to the talent shortage.

What’s more, these economies are still growing strongly despite the

slowdowns in the US and Western Europe. Combine all of this with




incredibly strong local CEE currencies against the dollar, euro and pound and

CEE managers come out very well.”

Romania, Slovakia, Czech Republic, Turkey, Estonia, Lithuania, Latvia,

Hungary and Poland all rank highly. Russian management salaries perform

well at ninth place overall. In contrast, Ukrainian managers performed poorly,

particularly compared to previous years, reflecting a degree of instability in

the local economy.

Nordic region Once again the Nordic countries dominate the lower end of the table. Georg

Vielmetter, General Manager for Hay Group in Scandinavia, says: "Not

surprisingly, the Nordic countries are at the bottom of spending power for

managers, with Sweden well behind the others. The reason for this is three-

fold: high cost of living, high marginal taxes, and low gross salaries due to theegalitarian culture.

“The point about low gross salaries is especially true in Sweden, while Finland

is starting to catch up to international norms. This lack of financial incentive

may be a key reason why we find so few international managers in Sweden,

and which affects international companies in times of a war for talent.”

South and Central America Argentina and Mexico rank highly for managerial spending power, thanks to a

relatively low cost of living. Brazil’s results also reflect its continuing and

stable rate of growth, keeping it firmly in the middle of the rankings, with aspending power roughly 50 per cent above that of the US.

The position in Argentina is unlikely to change soon, according to Luis

Arispon of Hay Group South America. “Management level salaries in the

region generally increase roughly in line with inflation,” he said.

“Unlike the highly heated economies of China and India, we are not seeing

management level salaries growing exponentially faster than the general

market. While managerial salaries are still significantly higher than those of

blue collar or clerical workers, they tend to increase in line with the cost of

living.

“This means that companies are more easily able to source high-quality

management talent in South and Central America than in the booming

economies of the Far East,” he added. “In times of global economic

downturn, this makes the region a strong prospect for growth, as the relative

cost of labor is lower.”

Pacific Not surprisingly, Australia and New Zealand continue to be ranked in the

bottom half of the table with spending power only marginally above that of US

managers. While Australia’s strong economy continues to drive demand for




management talent – with a corresponding rise in wages – a relatively high

cost of living and high marginal tax rates eat into the relative spending power

of managers.

Africa The spending power of managers in Egypt is relatively low, coming in below

that of the US. This is due to inflation, which has accelerated over the last

year and has affected the cost of even the most basic commodities.

South Africa remains firmly in the bottom half of the table at 36th

. Ginger

Brown of Hay Group South Africa commented: “The last year has been a

period of high inflation – in double digits for the first time since 2002 – and

low economic growth. In addition, interest rates have risen 4.5 points over the

last 12 months further eroding purchasing power and causing many people to

tighten their belts.

“It is not surprising that the net take home position of senior managers has

declined in the last 12 months,” she said. “Salary increases are lagging behind

the consumer price index, and we expect to see greater increases at the

beginning of next year. Whether those increases will lead to manager salaries

catching up with inflation remains to be seen.”




Table 1: 2008 ranking of managers’ spending power by

country

This table ranks management spending power, and provides an index using

the USA as the base point of measurement. The cost of living figures which

these rankings take into account also use the USA as their base point.

Rank Country Index

1 Qatar* 241.7

2 United Arab Emirates 218.2

3 Saudi Arabia 210.1

4 Hong Kong 199.6

5 Turkey 189.26 Oman* 180.4

7 Kuwait* 179.0

8 Romania 168.6

9 Russia 163.7

10 Thailand 162.0

11 Argentina 159.8

12 Mexico 152.2

13 Bahrain* 152.0

14 Poland 147.1

15 Austria 146.8

16 Lithuania 145.7

17 China 145.0

18 Germany 144.7

19 Spain 144.4

20 Switzerland 144.2

21 Greece 141.4

22 Singapore 141.3

23 Brazil 134.6

24 Malaysia 133.9

25 Portugal 132.1

26 Ireland 129.2

27 Slovakia 126.5

28 Czech Republic 122.429 New Zealand 114.9

30 Netherlands 113.5

31 Latvia 113.3

32 Italy 109.7

33 France 109.6

34 Ukraine 109.5

35 South Korea 108.6

36 South Africa 107.8

37 Australia 107.1




38 India 106.1

39 Japan 106.0

40 Hungary 105.041 United States of America 100.0

42 Belgium 97.7

43 Estonia 95.9

44 Egypt 93.7

45 Canada 93.6

46 Denmark 90.2

47 United Kingdom 88.9

48 Norway 84.9

49 Indonesia 82.1

50 Finland 78.6

51 Sweden 75.6* new entry in 2008

Table 2: 2007 ranking of managers’ spending power bycountry

2007

1 Saudi Arabia2 United Arab Emirates

3 Hong Kong4 Russia5 Turkey6 Mexico

7 Ukraine8 Thailand9 Singapore10 Argentina11 Poland12 Spain

13 Switzerland14 China15 Greece16 Malaysia17 Brazil18 Lithuania

19 Germany

20 Ireland21 Portugal22 Romania23 Austria

24 United States25 Netherlands26 Australia27 Japan28 Italy29 South Africa30 New Zealand

31 France32 South Korea



9 S t b 2008 12 f 12 h

33 Latvia34 Czech Republic35 Egypt

36 India37 Hungary38 Belgium39 Slovakia40 United Kingdom

41 Denmark42 Canada43 Estonia44 Norway

45 Sweden46 Finland47 Indonesia48

495051

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