Highest salary rises are expected in Venezuela; lowest are forecast in Germany.



Globally, salary increases to outpace inflation by 1.9%



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.



While the average pay in nearly two-thirds (63%) of the 60 countries surveyed, including the US and UK, 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."



Europe



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."



North America



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%.



Central/South America



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 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%.



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



Asia-Pacific



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%, 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%.



Neo Siew Khim, Mercer Principal and Human Capital Product Solutions Business Leader, Asia Pacific commented that "Asia is currently halfway through a cycle (first year being 2004) towards positive economic growth, which is expected to last five to six years. Overall, we expect to see an upbeat business environment and ample opportunities for businesses and employees across the region. We will have tight labour market conditions that will cause salaries to move faster and faster. In general, we are seeing a very similar trend across Asia Pacific in terms of acceleration of salary increase rates. However, market variations in terms of pace of increase and amount are dependent on the economic environment, maturity of the market (i.e. China and India) availability of talent, skills premium etc. What we have observed is that the salary pressure is more critical and at a faster pace in emerging markets like India and China than the already developed and matured markets."



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