The big pay turnaround: Eurozone recovering, emerging markets falter in 2015

Latest data from global management consultancy, Hay Group, reveals that salaries are increasing at a faster rate than last year despite disappointing growth in several key emerging markets.

Salary increases in New Zealand to remain stable

The absence of general inflationary pressures both locally and globally is helping to contain salary inflation in New Zealand, as is the arrival of a significant number of migrants with work visas. 

Salary inflation has remained subdued since the GFC despite solid economic growth and a shortage of skills in some industries.  Overall annual salary growth has followed a very narrow track between 2.5% and 2.9% over the last four years.

Whilst remuneration remains critical in attracting, retaining and incentivising employees, organisations are now much more focused on rewarding those who are critical to the organisation’s success rather than necessarily providing overall increases to all employees. 

Over the next year, salary movements are expected to average 3%, but this will vary dependent on an organisations performance and the industry in which it sits. 

Salary inflation is likely to continue to remain at this level until the economic recovery becomes more widespread and the labour market tightens further.    

 

Highest salary growth in Asia

In Asia, salaries are forecast to increase by 6.8% – down 0.2% from last year – but with relatively low predicted inflation (3.7%), employees are set to experience the highest growth in real income across the globe (3.1%). The largest increases are forecast in Vietnam (11.4%), Indonesia (10.0%) and China (8.0%). And, even when inflation is factored in, real pay rises are 6.6%, 4.4% and 5.7% respectively. 

The high pay rises in this region reflect the ongoing war for talent, both for experienced managers and new graduates from the best universities. In China, it is also the result of pressure from the government to create a burgeoning middle class – which means minimum wages are rising across China’s second and third tier cities. And in Vietnam, workers are benefitting from the country’s higher than average GDP growth.

Struggling emerging markets

Salaries across the globe are set to rise by 5.4% on average for 2015 – compared to 5.2% last year. But this average masks a significant slowdown in emerging markets like Brazil, Russia and Ukraine, which have been the key drivers of growth in recent years. 

Workers in these countries can expect to see salary rises of 6.1%, 6.8% and 6.8% respectively. However, with inflation (predicted to be 6.5%, 7.5% and 10.7%) employees will experience real wage cuts of 0.4%, 0.7% and 3.9%.  

Signs of hope in Europe

Salaries in Europe have been buoyed by the improving performance of economies that have struggled recently. Most notably, Greece and Ireland are set to see salary rises of 1.3% and 1.4% respectively, a real wage growth of 2.5% and 1.1% – compared to 0.8% and 0.2% last year, as both countries return to economic growth.

Across the region, salaries are expected to rise by 3.1%. And with low inflation (predicted to be 1.5%), employees will see real average wage growth of 1.6%. 

It is also good news in the UK for employees who will start to see a recovery in wage growth. While salary rises of 2.5% are the same as last year, with lower inflation (predicted to be 1.7%) employees will experience an increase in real income (0.8%) for only the second time since 2009.

Turkey is forecast to experience the largest increase in Europe with pay rises up to 9.0% but workers will still feel a squeeze on income with inflation predicted to be 8.9%.

Simon Woolley, Business Unit Leader, Hay Group New Zealand comments: “This year’s global forecast shows pay rises rising at a higher rate this year compared to last. However, this conceals stark variations from region to region and country to country. Each market has its own complexities and organisations must understand the detail if they want to attract and retain the best workers. The big turnaround is between Europe and the emerging markets. Real pay is now rising in many European markets, but in key emerging economies, which have been the boom area of the last 10 years, real wages are falling.”

Continued pressure in Latin America

Wage rises in Latin America are being eroded by high inflation. Despite employees across the region being forecasted to receive the highest salary increases of 9.7% on average, with inflation predicted to be 10.7%, workers will see an average real wage cut of 1.0%. 

Venezuela is set to suffer the most significant cut in real income across the globe. Despite salary increases of 40.3%, when accounting for predicted inflation (64.4%), employees will receive real wage cuts of 24.1%.

Stable North America

Pay rises in North America are forecast at 2.8% – up 0.1% compared to last year and with inflation predicted to be 2.1%, employees will experience a real income increase of 0.7%.

Strong growth in the Middle East and Africa

Despite broader economic and political turmoil, salaries in the Middle East and Africa are forecast to rise by 5.6% and 6.9% respectively, a real growth in income of 2.9% and 2.0% as inflation is predicted to remain relatively low.

Woolley concludes: “To make low salary rises stretch further, workers who are performing well may receive higher than average pay increases, while it’s likely that poor and average performing workers will receive little if no increase. However, a business is nothing without its people and during periods of low growth, organisations must think creatively about how they motivate and reward their employees.” 

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