Projecting Salary Increase Budgets for Global Organizations

Posted by Chris Kelley on Jun 1, 2017 5:22:09 PM

Salary increase budgeting can be a challenge in any organization, but the complexities faced by global compensation professionals are an order of magnitude higher.  All the tips we raised in our blog post, “4 Tips to Prepare for Salary Planning”, focused on US salary budgeting, but you can still apply them to a global setting.  However, there is much more going on for managing salary budgeting process on an international stage.

Here is just a small sampling of the additional challenges faced when developing salary budget projections for a multi-national organization.

Country-Specific Salary Growth Projections – You will want to make sure you have a data source that has strong participation in all the countries you operate.  It’s hard to go wrong with the Aon Hewitt Global Salary Increase Survey given our coverage across multiple industries, over 13,500 organizations in more than 120 countries. 

Last year, we saw 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 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.

Variable Pay Complexities – We’ve written extensively on the trends to push variable pay deeper into organizations.  The organizational benefit of keeping fixed costs of base pay in check and relying on variable pay more to reward performance holds true regardless of country or region. The added complexities though for the global compensation professional is that we can’t just think of an optimal incentive plan design from one perspective.  There are different cultural norms and regulatory hurdles around the globe that will affect your variable pay plan effectiveness.  For example:

  • A US-centric incentive plan might work best with individual performance metrics. Other cultures cringe at the idea of individual metrics and place more value on team or even organization-wide metrics.
  • With the ‘at-will’ employment mindset of many US organizations, an incentive plan can be altered or eliminated based on the employer’s discretion. Other countries may have an ‘acquired rights’ point of view where an incentive amount earned in prior years becomes the entitlement of the employee and incentive plan design or eligibility requirements are not easily changed.

Currency Fluctuations – In most cases, currency exchange rates remain relatively constant.  However, you need to be aware of and prepared for impacts that currency fluctuations will have on your budget assumptions as well as on your variable pay plans. Larger multi-national firms will usually have a centralized approach to currency exchange rates that corporate finance controls.  This makes sense since currency exchange rates impact more than just wages.  Still, you should keep an eye on exchange rate movement throughout the year so you can stay abreast of the dynamics affecting the compensation budget.

Economic Indicators – Certain countries experience more volatility in their economy and these swings can have a dramatic effect on your salary planning decisions.  At a minimum, you should routinely monitor Consumer Price Index (CPI) and Unemployment statistics for each country. See our recent post on “Tips for Your Global Compensation Country Watch List” for more information.

Pay Increase Types – Knowing the projected market movements for salary structure, merit increase awards, and promotional increases is the same need as you would have in the US.  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.

This sampling of five additional challenges just scratches the surface of what a global rewards professional faces when building their salary budgets. The first step though in working through these challenges is making sure you have the right data and that starts with the Global Salary Increase Survey.  Participation is underway now so don’t miss out on your opportunity to be a part of this premier data source.  Contact us now to connect with one of our Account Executives and learn more.

 

Global Salary Increase Survey

 

Topics: salary increase budget, salary planning

Chris Kelley

Posted by Chris Kelley

Chris is a Director of Survey Product Management and is actively involved in the design and administration of a portfolio of salary surveys for Aon Hewitt. Chris previously spent over 20 years working in compensation / HR and he is an adjunct faculty member for WorldatWork where he has taught Market Pricing for over 10 years.