Global pay rates expected to stay ahead of inflation

By Laura Cassiani
|Canadian HR Reporter|Last Updated: 01/23/2001

Pay increases across the world will hover slightly above inflation rates, a global compensation planning report states.

According to the 2001 Global Compensation Planning Report, conducted by HR consulting firm William M. Mercer Limited, pay increases will fluctuate a few percentage points above the predicted inflation rates around the world with a few exceptions.

The report found that pay increases are keeping ahead of inflation rates in most major countries by one per cent to six per cent with an average inflation rate of between one and four per cent.

“As our report shows, there is a clear economic connection to pay decisions employers make,” said Danielle Bushen, a consultant with Mercer. “With base pay increases reflecting inflation rates, employers are able to pay competitively, given current economic conditions, while largely preserving employees’ buying power.”

In Canada, the trend remains the same with pay increases ranging from 3.4 per cent for blue-collar employees to 3.9 per cent for top-management positions, with an inflation rate of 2.3 per cent. In the knowledge-economy industries, like software, high tech and bio tech, pay increases are expected to be greater than the average. Other industries expecting to receive higher pay increases include pharmaceuticals and telecommunications.

In some countries base pay increases will be lag behind inflation rates. Pay increases in Venezuela will be as high as 20 per cent this year but the country expects to experience inflation of 21 per cent. The same situation is expected in Romania, where the rate of inflation is predicted to be 28 per cent with pay increases of 27 per cent.

“Inflation has an impact on the cost of living and business performance so it does impact the bottom line,” said Bushen.

Inflation and relocation

What does host country inflation mean to expatriate relocations?

Expenses such as accommodations and vehicles will usually be unaffected because leases will have been signed for fixed amounts at the beginning of an overseas assignment, but where this isn’t the case companies should be prepared to make an adjustment on the expatriate’s behalf, said Gail Reinhart, a relocation consultant in the Calgary office of Runzheimer Canada.

“It’s on the goods and services side where inflation will be felt,” she said. “In inflationary countries you should do more frequent pricing surveys — every quarter instead of semi-annually, for example — and adjust goods and services allowances.

“If inflation gets really bad, you should consider paying expatriates in a stable currency such as the U.S. dollar,” she said.

Do you have a question about compensation plan design? Canadian HR Reporter has a pool of experts ready to answer your questions about compensation and total rewards. If it is selected by us, your question and the reply will be posted on hrreporter.com. To pose a question to one of the compensation experts, visit www.hrreporter.com/compensation.

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