Hay Group: Emerging markets managers have highest spending capacity

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 account.


Hay Group: Emerging markets managers have highest spending capacity

The market for management talent is now undoubtedly global. 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 account. 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, fuel and, in some key markets such as the Middle East, accommodation.

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.

Region and country trends


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 centre 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 the 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 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 neighbours," 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 USA 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.

"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 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 labour is lower."


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 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.


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."