Western managers have lower disposable incomes

Jul 16 2007 by Nic Paton Print This Article

Managers working in emerging economies such as Russia, Turkey, Mexico and Ukraine may not earn as much as their counterparts in the West, but when it comes to actual disposable income they are often much better off.

It's always assumed managers in less developed economies will be earning less than their Western counterparts, and in monetary terms that may indeed be the case.

But when it comes to day-to-day disposable income, it is managers in Western economies who may be more likely to be struggling to make ends meet, according to a survey by consultancy Hay Group.

In fact Switzerland, Germany and Ireland are the only European countries to make it into the top 20 countries for management buying power, with the US lagging at 24th and the UK at 40th, said Hay.

"The continued growth of emerging markets is creating unprecedented demand for senior talent," said Steve Marsden, global director of reward information services at Hay.

"The resulting talent shortage, plus the premiums paid to managers in these hot markets, is inflating management pay in less advanced economies," he added.

The Hay World Pay Report compared detailed cross-country pay information, taking into cost of living and tax to reveal disposable income levels – the true purchasing power of managerial pay – for 46 countries in North America, South America, Middle East, Africa, Europe and Asia Pacific.

Managers in the oil-rich, tax-free states of Saudi Arabia and the United Arab Emirates, perhaps unsurprisingly, took home the highest disposable incomes worldwide, with pay equating to buying power in excess of $220,000.

"Managers in Saudi and the UAE enjoy soaring levels of take-home pay, as employers in this region pay more attention to cash rather than performance-based incentives," said Vijay Gandhi, reward information services manager for Hay in Dubai.

"But as demand for experienced managers remains high, companies in the region are looking more closely at the use of long-term incentives as a way of attracting and retaining international talent," he added.

Hong Kong was ranked third, with pay buying power equivalent to $203,947.

"Pay rates for management have traditionally been high in Hong Kong – up to more than a third higher than other Asian cities such as Singapore – with management buying power enhanced by low rates of income tax," said Hern Yin Goh, reward information services manager for Hay in China.

However, it was the emerging economies of Eastern Europe and beyond that dominated the new world pay map, said the survey.

Managers in Russia were fourth in line, with disposable incomes of around $157,348. Close behind was Turkey, where managers earned on average $154,762 once tax and cost of living were taken into account.

Mexico came in sixth, with a real value of management pay of around $152,283. Ukraine was seventh, with disposable incomes for managers equivalent to $149,118.

Polish managers were placed 11th, ($128,537) and Lithuanian managers at 18th ($122,941).

"Ongoing demand for experienced managers and increased mobility of talent in a global market means that management pay in many emerging economies is likely to remain high in the foreseeable future," said Philip Spriet, reward information services director for Hay in the EMEA region.

Management pay in Western European countries fared poorly by comparison, Hay stressed.

The UK was ranked just 40th in the management pay stakes, offering disposable incomes equivalent to $86,367 once pay has been eroded by taxation levels and a high cost of living.

Germany was 19th, ($122,427), and France 31st, ($98,117). Italy was just ahead at 28th, with disposable incomes of $101,487 for managers.

Only Spain, where the cost of living remains much lower, was reasonably placed, taking 12th spot with disposable incomes of around $128,197.

American managers were also poorly paid compared with emerging economies.

American managers were ranked just 24th in the world pay league table, with a buying power equivalent to $104,905 when tax and cost of living were taken into account.

"Companies are operating in an increasingly open and competitive global economy, and emerging markets are offering managers higher disposable incomes than established countries – which is making these locations an attractive prospect for management talent," said Iain Fitzpatrick, director reward information services for Hay in North America.

"This makes sobering reading for companies in Western Europe and the US, who face not only local competition for managerial talent, but an increasing threat from buoyant new economies."

By comparison, China's rapid economic development was reflected in rapidly rising disposable incomes at management level, averaging $126,281, placing it 14th in the table.

Yet, despite its impressive economic development, the picture was far less encouraging in India.

At 36th in the global pay stakes, managers in the country had buying power of just $92,750, said Hay.

"Chinese companies have realised the need to attract management talent as economic acceleration continues apace, having a significant upward impact on managers' pay," said Hern Yin Goh.

"However, India benefits from a large tier of well educated, English-speaking local talent, making management pay more immune to the international market. That said, managers' pay is increasing at double-digit rates in India – between 15-20 per cent – so it is unlikely to stay at the bottom of the pay table for long," he added.