World Pay Report

Global management spending power

September 2008

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

 Global overview – senior management buying power

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 The global talent quest
The market for management talent is now undoubtedly global. At Hay Group
we consistently see developments in one region having a flow-on effect to
others – 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 51
countries around the world.

Overall findings
Managers 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.

1
Year-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.
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 A note on methodology
Hay Group’s World Pay Report was compiled by comparing detailed cross-
country salary information from Hay Group PayNet. Data in PayNet is based
on 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.

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 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

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 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,” he
said. “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 these
developing 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.

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 “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 global
experience 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 difficulty
in 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 the
potential 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

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 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 the
egalitarian 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 a
spending 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
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 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.”

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 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 189.2
6 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 122.4
29 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

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 38 India 106.1
39 Japan 106.0
40 Hungary 105.0
41 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 by

country
2007
1 Saudi Arabia
2 United Arab Emirates
3 Hong Kong
4 Russia
5 Turkey
6 Mexico
7 Ukraine
8 Thailand
9 Singapore
10 Argentina
11 Poland
12 Spain
13 Switzerland
14 China
15 Greece
16 Malaysia
17 Brazil
18 Lithuania
19 Germany
20 Ireland
21 Portugal
22 Romania
23 Austria
24 United States
25 Netherlands
26 Australia
27 Japan
28 Italy
29 South Africa
30 New Zealand
31 France
32 South Korea
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 33 Latvia
34 Czech Republic
35 Egypt
36 India
37 Hungary
38 Belgium
39 Slovakia
40 United Kingdom
41 Denmark
42 Canada
43 Estonia
44 Norway
45 Sweden
46 Finland
47 Indonesia
48
49
50
51

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