• Globally, salaries are expected to outpace inflation by 1.9 percentage points on average
• Highest salary rises are expected in Venezuela; lowest are forecast in Germany
• Greatest salary increases after inflation are likely to be in Latvia; lowest projected to be in Puerto Rico

Globally, salaries are predicted to rise by an average of 5.9% next year – 1.9 percentage points above inflation – according to a study by Mercer Human Resource Consulting, a global leader for HR and related financial advice and services.  

While the average pay in nearly two-thirds (63%) of the 60 countries surveyed, including the US, is forecast to rise by between 1 and 3.5 percentage points above inflation, the report reveals interesting differences in pay and inflation trends around the world. A minority of countries are predicted to experience rises of more than double the global average real-term increase. In Latvia, for example, employees are expected to receive pay increases of 6.8% above inflation. Other countries at the extremes include Paraguay and China, where salaries are predicted to outpace inflation by 6.4% and 5%, respectively. Puerto Rico, Argentina and Ukraine rank lowest with projected pay increases forecast at 4.5%, 3.2% and 2.3% below inflation, respectively.

Steve Gross, a worldwide partner and global leader of broad-based rewards consulting at Mercer, said, “Pay increases tend to vary significantly around the world, depending on country-specific factors such as inflation, economic growth and unemployment. Global companies need to be especially aware of these key economic and labor market differences when setting compensation budgets and deciding how to allocate resources to generate the greatest return on their rewards investment.”

In Western Europe, average salary increases are expected to be highest in Greece for the fourth consecutive year, at 5%. Meanwhile, inflation is likely to be 3%. Employees in Ireland are predicted to receive large pay rises of 4.5%, while inflation is forecast to be 2.5%. In the UK, pay is projected to increase by 3.6%, with inflation at 1.9%. Germany is expected to have the lowest pay growth in the region at 2.3%, with inflation at 2.5%, leaving workers worse off in real terms. 

Pay levels in many Eastern European countries are likely to increase significantly next year and are forecast to be among the highest in the world. For example, pay in Latvia is projected to increase by 11.1% on average, with inflation at 4.3%. Workers in Lithuania can expect increases of 7.3%, with inflation at a comparatively low rate of 2.8%. However, while employees in Hungary can expect pay rises of 4.8%, inflation is likely to be higher at 5.5%. 

“The European economic landscape is divided into the emerging markets of the East and the more mature economies of the West. The research shows that employees in many Eastern European countries can generally expect to benefit from higher salary increases than their Western counterparts,” said Mr. Gross.  

He added, “Demand for low-cost, well-educated employees is increasing in Eastern Europe. In particular, the need for skilled workers with marketing, engineering and IT expertise continues to drive up salaries.”

Despite continued economic growth in the US and Canada, wage inflation remains stable with   salaries in both countries likely to increase by 3.7% next year. However, with inflation at 2.4% and 2% in the US and Canada, respectively, Canadian employees will fare better overall.

“Since the dot-com bubble burst around four years ago, base pay in the US has remained fairly stable,” said Mr. Gross. “Employers continue to be reluctant to increase their fixed pay costs, preferring instead to use variable pay to reward their employees.”

“To make the most of their base pay budgets, employers should consider segmenting their workforce – not just into high, middle and low performers, but also by geography, career level or

function,” he added. “Defining each employee segment based on its contribution to business success enables organizations to reward staff appropriately, as they can apply premium, standard or discounted pay levels to the various groups.” 

In Mexico, salaries are predicted to rise by 4.5%, with inflation at 3.7%.

Pay rises in some Central and South American countries are forecast to be among the highest in the world. However, most of these increases will be offset by high inflation rates. In Argentina, workers can expect pay rises of 11.8%, while inflation will be 15%. The survey found that salaries in Venezuela will be almost frozen as pay rises and inflation are predicted to be 17.4% and 17.3%, respectively. 

Large increases can be expected in the Dominican Republic and Uruguay, where pay is predicted to rise by 9.8% and 9.4%, respectively, and inflation is forecast at 5% and 4.9%, respectively.

The lowest pay increases for this region are expected in Peru, at 3.5%, while inflation will be 2%. 

There are likely to be significant variations in salary increases across Asia-Pacific countries, with employees in the emerging economies receiving higher increases than their counterparts in more mature economies. Workers in Indonesia and China, where multinational companies continue to set up operations, are predicted to receive pay rises of around 11.4% and 7.2%, respectively. Inflation in these countries is likely to be 6.6% and 2.2%, respectively, so in real terms employees in both countries will experience similar increases.    

In Singapore and Hong Kong, pay is forecast to rise by 4% and 3.6%, respectively, and inflation is likely to be around 1.9% and 2.1%, respectively.  

Mr. Gross commented, “A number of important trends – such as the influx of foreign investment, the aging workforce, increasing education levels in many countries and varying GDP growth rates – are influencing labor availability and costs in Asia. These factors affect how companies reward their employees and make site-selection decisions for their business operations in this region.”

In Australia, average pay is predicted to rise by 4% while inflation is likely to be 3.5%.

Copies of Mercer’s 2007 Global Compensation Planning Report cost $600 and are available from Client Services at 800 333 3070 or at www.imercer.com/gcpr.

The findings of Mercer’s 2007 Global Compensation Planning Report also are the subject of four web-based video presentations posted at www.mercerHR.com/compensation2007. These brief videos, which feature Mercer compensation experts from around the world, include a global overview of important compensation trends and issues, plus a more detailed discussion of Mercer’s latest compensation planning and total rewards survey findings in three major regions of the world (Americas, Asia/Pacific and Europe). The videos will be posted on September 13.

Notes to Editors: The research is taken from Mercer’s 2007 Global Compensation Planning Report, which examines worldwide employment, economic and pay trends. Data on projected pay is taken from Mercer’s Total Remuneration Surveys and inflation data is primarily taken from the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development. 

Data for the 2007 Global Compensation Planning Report covers five levels of employees: operations staff, clerical staff, technical staff, managers and senior executives. The salary increases quoted in this release relate to the average of all employee categories and are forecast figures.

Projected 2007 annual base pay increases and inflation rates – ranked by projected pay above inflation (%)

Bottom 5 ranked countries

Other select countries

Source: Mercer Human Resource Consulting, 2007 Global Compensation Planning Survey