Emerging economies overturn world pay order

2006

So-called "second world" economies in Asia, Eastern and Southern Europe are overturning the world pay order and overtaking developed Western countries as the world's new pay hotspots.

According to Hay Group's World Pay Report, Turkey tops the pay pecking order with senior managers taking home the highest real pay levels worldwide, earning an average net salary equivalent to €79,000 ($99,000) when bonuses, tax and cost of living are taken into account.

The report compares detailed salary, bonus, tax and cost-of-living information at senior management (departmental head) level in 29 countries across the world.

Hot on their heels, riding high on the country's outsourcing boom, senior managers in India earn the equivalent of €77,700 ($96,000) in real terms, placing them second in Hay Group's World Pay rankings.

Eastern and Southern Europe are the rising stars on the new world pay map, with Russia's senior managers third in the pay stakes, enjoying salary buying power equivalent to €77,400,($97,000) and Poland's senior managers sixth, with salary buying power equivalent to €76,300 ($95,000) when tax and cost of living are taken into consideration.

"The rapid growth of emerging economies such as India, Turkey, Brazil and Eastern Europe is creating unprecedented demand for senior talent," said Ben Frost, the report's author.

"Our findings reflect the knock-on effect of this - rapidly inflating management salaries in countries where the cost of living is yet to catch up."

The USA fares poorly compared to buoyant new economies in Turkey, Russia, Brazil and Poland. The USA is ranked only 13th in the World Pay league table, offering senior managers only average level salaries, equivalent to buying power of €62,000 ($77,500).

Western Europe also does badly. The UK is ranked 23rd in the senior management pay stakes, offering real pay equivalent to €47,000 ($59,000), France is ranked 20th and Italy ranked 19th.

Germany, viewed as the economic powerhouse of Europe, is ranked 8th, with senior management salary buying power pitched at €75,700 ($94,500).

Companies in Western Europe and the US face a cross border war for managerial talent

"Companies operate in an increasingly open and competitive global economy. Our research shows that emerging economies are offering executives significantly higher disposable incomes than the Old World – which is likely to make these locations an attractive prospect for senior talent," said Ben Frost.

"This should make sobering reading for companies in Western Europe and the US, who face not only an increasing competitive threat from buoyant new economies, but a cross border war for managerial talent."

With their heavy tax burdens, Nordic countries are ranked bottom of the senior management pay stakes, paying their senior managers salaries with buying power of just €42,000 in real terms - the equivalent of half the salaries offered by Turkey and Russia.

At the very bottom of this list is Sweden, where senior managers earn the equivalent of just €37,650 when tax and cost of living are taken into account. Finland fares little better, with senior management wages pitched at €41,000 in real terms. Denmark fares best at 22nd in the table, but even here managers taking home only €48,000 in real terms.

"Management talent in the Nordics are not adequately compensated for the high cost of living they face," said Ben Frost, Reward Consultant, Hay Group.

"Companies across the region need to consider their pay packages carefully if they are not to see a brain drain to the buoyant neighbouring economies of Eastern Europe."

China, meanwhile, is facing a much-publicised lack of senior management talent yet is offering little incentive to managers in order to redress this, offering real senior salaries of just €42,000 ($52,500)– less than a graduate starter salary in Switzerland.

"As an emerging economy, Chinese salary levels remain pegged at a low level, even accounting for the effect of China's undervalued currency on international comparisons." said Ben Frost.

"However, when it comes to attracting management talent, Chinese companies must realise that they are competing in a global market. Ambitious Chinese businesses must develop their own management talent, and be prepared to pay to recruit star players in a tight market."