Two Big Questions for Global Compensation Planning

May 31, 2018

Now is the time when companies start reviewing their salary budgets, and every year we get questions from our clients that hit on a couple consistent themes, including how much emphasis they should place on the economic indicators and what the projected salary growth is for certain regions across the globe. We’ll dive into each of these issues in detail below.

Accounting for External Economic Indicators

Having a better understanding of how economic indicators— including economic growth, inflation, unemployment, turnover, currency exchange rates and geopolitical climate— are affecting salary increases will help you determine the driving forces behind wage growth in markets where you operate.

From our analysis, GDP is the economic factor that has the highest correlation to actual salary increase growth. Keeping a close eye on GDP trends in markets where you operate will provide you with important insights on how to apply the salary increase projections.

Meanwhile, we would intuitively expect that low unemployment and/or high voluntary turnover would put pressure on salary increases. Surprisingly, our analysis finds neither of these factors is strongly correlated to salary growth.

When it comes to inflation, we have seen recently as much as 70% of countries reporting wage increases that outpaced inflation. This is good for employees as it generally means that their purchasing power has improved. The flip-side of that equation though is when a country’s consumer price index (CPI) is substantially higher than the salary growth. This can lead to other workforce challenges that you don’t necessarily solve through your wage structure budget, but you also can’t just ignore.

Finally, currency exchange rates more closely align to the CPI instead of the price of labor. Fluctuations of currency exchange rates can quickly change the affordability of goods from foreign markets, but not directly the rates of workers.

How to Incorporate Global Salary Increase Data

Companies in all parts of the world are generally seeing growth in their salary budgets, but the complexities of planning global salary budgets mean that compensation professionals need more than just a growth factor percentage. Yes, you need the merit increase projections in each market where you operate, but you should also have a comprehensive plan for managing your salary growth.

Knowing the projected market movements for salary structure, merit increase awards, and promotional increases is the same need as you would have in a specific country. When building a salary increase budget on a global basis though, you need to know what the projected increases are for government and/or labor union mandated increases.

Mandated increases are the most complicated to plan for because some local governments are notorious for not establishing their requirements until the actual start of the new year— well after the time most corporations have locked down their budgets for the year. The best way to combat that challenge is to build into your global compensation policy the latitude to adjust budgets based on country mandates. For example, set limits of what the country can do independently without requiring corporate finance budget exceptions.

Learn More

Aon’s Global Salary Increase Survey report is available now to help you prepare for your 2019 compensation plans.  Data is available for 128 countries on:

  • Types of variable pay
  • Current and projected variable pay spend
  • Current and projected salary increases and budgets
  • Broad-based pay
  • Insights on wage increases, employee turnover, cost-saving measures and pay delivery

The report also provides insights on:

  • Short-term incentives
  • Long-term incentives
  • Sales compensation trends
  • Trends regarding identification and rewarding top talent

Contact us to learn how you can purchase your copy of this report to aid in your compensation planning.

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