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Following the money

Published on Friday, 19 Apr 2013
Lee Quane
Photo: K. Y. Cheng

Any comparison of salaries paid for similar roles in different countries will inevitably stir debate. Tax rates, benefits, relative seniority and the cost of living must somehow be taken into account, even before considering aspects such as hardship, family allowances and housing. However, as international mobility becomes increasingly important for employers in a fast-evolving global economy, it is essential to have some scale against which to gauge and, if necessary, adjust.

“There are clear implications for organisations planning to have more than one nationality of employee working together in the same location,” says Lee Quane, regional director, Asia, for ECA International. “For example, a Japanese middle manager would be ‘wealthier’ in Australia on local terms; a Chilean would not.”

Such knowledge is derived directly from ECA’s national salary comparison, which provides a handy snapshot of the relative wealth of various tiers of manager in 55 different countries. It shows, in effect, who turn out to be better or worse off by comparing local market-rate salaries paid on a gross and net basis after applying suitable cost-of-living differentials. In doing this, the aim is to ascertain relative buying power (RBP) in each place, which can then form a reasonable basis for international comparison.

“In terms of mobility, it highlights the importance of establishing an appropriate remuneration package when moving an employee between any two locations,” Quane says. “It also provides an easy-to-use guide for when and where it is fair to transfer staff on a local-pay basis.” Studied in detail, the accompanying charts can also act as an effective early-warning system for HR departments and potential assignees. They confirm, for example, that the relative buying power of the average junior executive in Hong Kong would increase noticeably with a move to countries such as Canada, Australia, Switzerland and the US. It would fall as a result of a transfer to France, Singapore or South Korea. In contrast, a higher-level executive would have enhanced buying power in Singapore, but likely end up doing less well overall by going to Australia.

For companies, knowing this helps in planning, budgeting and “selling” overseas assignments to preferred appointees. For individuals, it at least lets them know where they need to  exercise caution or, more constructively, where they should refuse to accept terms which don’t represent parity.

Of course, broader trends also emerge.

“If the gap between US and Chinese buying power continues to close at the current rate, by 2017 Chinese executives will be better off than their US counterparts,” Quane says. “Many companies are already likely to encounter difficulties expatriating workers from China to Europe on host-country salaries.”

Reasons for that are not hard to find. According to survey results, the RBP of a mainland-based executive is now greater than that of his or her counterparts in France, Spain, Italy and Japan.

The last five years have seen a number of other dramatic changes, which look sure to have an ongoing impact on corporate strategies and personal preferences about international mobility. For instance, after a 10 per cent swing in RBP, middle managers in Australia are now slightly ahead of their opposite numbers in Britain. The general feeling is that employers whose policy is to offer “local” terms and conditions to staff relocating from other countries run a risk of being unable to attract and retain high-calibre people if circumstances keep changing and they are not sufficiently flexible.

In addition, Quane notes, ECA’s research shows that the number of international assignments initiated each year by companies headquartered in Asia is increasing at a much faster rate than for companies based elsewhere in the world. At present, these moves are still more likely to take place between countries within Asia rather than beyond. However, as China, in particular, pushes for further investment and management presence in key overseas markets, that trend is certainly one to watch.

“Middle managers in Hong Kong and Singapore command significantly larger salaries and enjoy higher buying power than [staff with equivalent roles] in other Asian countries,” Quane says. “Therefore, employees might happily consider moving from one city to the other on a local package. But remuneration for a move from either city to another country in Asia is unlikely to be considered competitive if calculated on purely local terms.”

He adds that, if salary inflation continues at the current rate, gross incomes for Chinese middle managers will catch up with Hong Kong by 2016 and with Singapore two years later.

Responses to ECA’s survey also brought to light certain common “mistakes”. For instance, when devising policies to promote and support job mobility within a region, as opposed to around the world, companies still take as their starting point – rightly or wrongly – the assumption that living costs, salaries and general amenities will be broadly similar. As a result, their initial stance in discussions and negotiations with staff is that there is no need to contemplate common extras or to otherwise “incentivise” a proposed move away from home base.

“Moves within a region are also more likely to be arranged on a permanent basis, rather than as an assignment [of defined duration],” Quane says. “This can remove any requirement to link the salary back to terms in the country of origin.”

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