Salaries for senior managers in fast-growing emerging markets are rising dramatically as global companies compete to attract and retain top talent in regions where the supply of experienced managers is limited.
And senior management pay in some emerging markets is already on par with Western countries, according to research from global management consultancy Hay Group, which maintains a database of more than 14 million employees at 20,000 firms worldwide.
Senior management salaries more than tripled in China between 2001 and 2011. During the same period, salaries tripled in Indonesia and grew by 2.8 times in Brazil, according to Hay Group. Emerging economies in Europe also saw huge increases: Management pay almost tripled in Turkey.
In developed markets, senior management pay increases were relatively small over the same period. In the United States (up by 1.4 times), the UK (1.7 times) and across western Europe (2.0 times), the increases failed to match those in some emerging markets.
Salary increases, in general, tend to be a product of three factors, according to Ben Frost, Hay Group global product manager:
Employee demands, driven by factors such as inflation, economic growth and company performance results.
Companies’ ability to pay, driven by how well they and the economy are performing.
Supply and demand for certain types of jobs and people.
“In emerging markets, economic growth is leading to robust pay demands – but the supply and demand crunch for key managerial and professional talent is what allows these employee demands to come through into pay increases,” Frost said.
Hay Group reports that total pay for senior management positions in Brazil was 105% of that in the United States in 2011; ten years earlier, Brazilian senior managers were paid 51% of what their US counterparts received.
Likewise, senior managers in South Africa were paid about the same amount as US senior managers in 2011, compared with 40% of the compensation US managers received ten years earlier. And management salaries in Turkey in 2011 were 12% higher than those in France; in 2001, such salaries in Turkey were 21% lower than those in France.
Cost becomes a concern
Such salary escalation reduces the cost-savings incentive for companies based in developed markets to invest in some emerging markets. Frost said reports last year of some companies bringing production back from China to the US (GE’s water heater production and NCR’s ATM production are examples) demonstrate that rising costs in some emerging markets can cause companies to invest more in developed markets.
“When you factor in wages, productivity levels and transport costs, this [returning production to the United States] is becoming an option in some industries,” Frost said. “Of course, there are other emerging markets with lower costs than China, and all emerging markets can improve their competitiveness through productivity gains.”
There are ways for companies to slow the rise in management salaries. Promoting existing employees can prevent a company from getting into a bidding war for outside talent. Seeing that it is possible to get promoted also can motivate workers.
Investing in training for existing employees also can have benefits with respect to salaries, Frost said.
“There is considerable evidence that employees who are ‘promoted from within’ tend to be paid less than those hired from the outside,” he said. “So investment in retaining, training and then promoting employees can definitely help to keep a lid on the pay bill. … Companies also can invest in the skills of their existing leaders to help them create a working environment that motivates employees and makes them want to stay with the company.”
—Ken Tysiac (firstname.lastname@example.org) is a CGMA Magazine senior editor.