The Emerging-Market Raise
November 17, 2017
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It’s been a complaint of managers in Chicago, Dallas and most everywhere else in the United States since the Great Recession. Their jobs have become harder and more stressful thanks to everything from global competition to tech disruptions. But salaries? They’ve remained stubbornly stagnant. Average raises for highly skilled workers have barely outpaced inflation for nearly a decade.
But maybe the problem is where they work. It turns out that managers are doing just fine in places like Istanbul, Buenos Aires and hundreds of cities around the world. They’re cashing in on average annual raises of 9 percent or more.
With little notice, salaries for mid- and senior-level executives are soaring in developing countries, increasing at double or triple the pace of raises for comparable jobs elsewhere. Salary bumps for experienced leaders in India, Colombia and Turkey (each above 7 percent) dwarf the average gains in the United States (3 percent) or Western Europe (an average of 2.3 percent). In the process, the gap between salaries for top-level roles in different parts of the world is closing, with a slew of implications for corporate planning. “Emerging-market economies continue to be a hot place for reliable growth, but companies are finding they have to pay more for it,” says Ben Frost, Korn Ferry’s global product manager for pay.
Some of the salary growth—affecting not only obvious areas like engineering and life sciences but also retail and consumer products—is a natural consequence of inflation, which has been high in developing countries but minimal elsewhere. “Salaries tend to grow faster in areas where inflation is higher,” says Lakshman Achuthan, chief operations officer of the Economic Cycle Research Institute. Plus, countries with big jumps in productivity also tend to have fast-growing salaries. In Vietnam, middle managers’ pay has been growing at a 9.2 percent annual clip, with senior executives’ salaries close behind, growing at 8 percent. But the firms in that Asian nation likely can afford it; productivity in Vietnam is growing at a 5.5 percent rate.
Beyond all that, there’s a larger macroeconomic factor at work here: supply and demand. Experts say that many emerging nations continue to face a shortage of mid- and senior-level leaders. Demographics are a major cause; there just aren’t as many experienced senior managers in nations where the average population age is under 30, as it is in most countries in Asia and Africa. At the same time, there’s huge demand for leaders who can run lines of business, manage factories or even run companies in the emerging world, because that’s where the growth is.
Indeed, it isn’t unusual to find bidding wars for the small supply of already existing executives. In China, an experienced supply-chain manager can get a 20 percent raise just by switching companies, says Rio Goh, a managing director at the China-centric consulting firm Morgan McKinley. Some companies in Malaysia, meanwhile, are actively recruiting Malaysians living in other countries to return home to work.
To be sure, the salaries for mid- and senior-executive jobs in developing countries are lower than similar roles in the United States. Still, it isn’t much lower in many cases, as China’s senior-level salaries, on average, are about 85 percent of US salaries and growing at 6 percent annually—double the rate of the US. If the current growth rates continue for each nation, senior-level salaries in China will surpass their US equivalents in less than a decade.
Experts says companies that banked on cheap emerging-market labor may need to reconsider their foreign strategies if the salary shift keeps rising—or start focusing on productivity gains to offset the higher costs. “In years past, you were in a situation where you’d throw extra bodies at the job, they were so cheap. But you can’t continue to do that forever,” Frost says. Indeed, some emerging-market firms are building factories in a country where executive salaries aren’t growing fast and the talent pool is deep: the United States.
Average raise for senior-level leaders:
- 16% GHANA
- 9% TURKEY
- 6% CHINA
- 3% USA
Source: Korn Ferry Institute