For the seventh year in a row, the hkp/// group has analyzed the compensation of international top executives. The result: Compensation levels in emerging markets are still approaching those in Western countries. hkp.com spoke to Jennifer S. Schulz and Verena Vandervelt about recent hkp/// group studies in international top management compensation.
hkp.com: In the aftermath of the global economic crisis 2008/2009, the so-called BRIC countries, i.e. Brazil, Russia, India and China have experienced strong economic growth. Is this development also reflected in the compensation of executives in these countries?
Jennifer S. Schulz: The economic upturn in the BRIC countries can also be seen in the development of compensation for top executives, i.e. executives below the board of directors or management in these countries. The compensation levels have largely approached the level of Western countries and in parts are even surpassing them.
Verena Vandervelt: For example, the levels of compensation of European executives at the highest transnational value level, hkp/// Executive Level 8, with an average of around EUR 400,000, are at levels similar to those in Brazil and Russia, whereas China and the USA top the list with EUR 511,000 and EUR 551,000 respectively.
hkp.com: Can this be seen on all executive levels?
Verena Vandervelt: No, depending on the value level, there are clear differences. Already at the next lower value level, hkp/// Executive Level 9, the compensation levels of executives in India and Russia with an average of around EUR 260,000 are at the bottom of the list. By contrast, the comparable target compensation in Brazil and China is well above the level in Europe. Only the US remains the undisputed leader at all levels.
hkp.com: So even apart from executive compensation, the USA are in a compensation league of their own?
Jennifer S. Schulz: Yes, that is true, right into middle management.
hkp.com: Are all the figures identified by you in your studies based on a similar compensation syntax or are there significant differences in the compensation structures?
Jennifer S. Schulz:In all cultural differences of the countries and regions examined, a similar weighting of the compensation elements can be observed. The portion of the basic compensation decreases continuously in favor of the variable portions with increasing functional value. In Brazil and China, the basic compensation is the most dominant. Europe is the leader in long-term compensation with a percentage of 20% at hkp/// Executive Level 8. Russia also shows consistently high LIT awards.
hkp.com: Especially for long-term share-based or share-oriented compensation elements, i.e. LTIs, many would have bet on the USA as the leader?
Jennifer S. Schulz: If one compared the local market practice for granting LTIs in the USA and in Europe, this assessment would certainly be correct. However, our database includes a significant proportion of multinational corporations, the so-called foreign headquartered groups and their foreign subsidiaries. Therefore, the evaluation of LTI awards in the USA contains many items of European parent companies, which at top levels in the USA, tend to provide the LTI levels common in Europe. This is reflected in the relatively uniform compensation structures across countries.
hkp.com: Does this mean that companies design their compensation practices globally uniform?
Verena Vandervelt: Yes, to a large extent. As the compensation structures customary in the country of the parent company are often rolled out to all foreign subsidiaries, whereas the domestic companies follow the local market conditions, the described compensation structures represent a mix of local market practice and that of the foreign headquartered companies.
hkp.com: Why do companies compare their compensation?
Jennifer S. Schulz: Globally competitive compensation is a key factor for acquiring, motivating and retaining mission critical employees in increasingly internationally positioned companies. Multinational corporations therefore strive to gain an overview of the current compensation practice and rely on specialized service providers. We have been offering this service very successfully for many years and continue to do so with an increasing number of participants.
hkp.com: Which studies exactly are these?
Jennifer S. Schulz: The spectrum of compensation studies and networks offered by the hkp/// group is naturally very large.The figures presented above are based on the findings of the DAX Top Executive Study and the broader top management survey with regard to the participating companies. Both are primarily designed for multinational companies headquartered in Germany, however, have a so-called International Module. Data from the Global ExecuNet Study (GEN) which is managed by our hkp/// RemuNet colleagues, also feeds into this International Module.
Verena Vandervelt: The described study combination now includes data from more than 100,000 international top executives and to date covers 55 countries in the regions of North & South America, Asia, Europe and the Middle East including Africa. As soon as more companies participate and a sufficiently expanded regional database is available, new countries are included in the report.
hkp.com: Who can participate in the study you describe?
Verena Vandervelt: Any company that is prepared to annually provide a defined set of international compensation data for the overall study sample. Study participants receive a comprehensive results report for the regions in which they provided compensation data for at least one country.
hkp.com: What other benefits are offered to study participants of the international module?
Jennifer S. Schulz: Among other things, participants in the International Module may take part in selected Global ExecuNet Chapter Meetings free of charge. These seminars provide the opportunity for exchange with other companies on current, specific issues in the respective region and promote the building of a regional network.
Verena Vandervelt: In summary one can say that the International Module offers a highly representative comparative market for multinational companies in Europe. With low effort for study participants, high quality compensation data from up to 55 countries can be acquired at an attractive participation fee.
Jennifer S. Schulz: As all other hkp/// compensation studies and networks, the compensation data in the International Module meet highest quality and security standards due to our many years of experience in the analysis and provision of compensation data.
Mrs. Schulz, Mrs. Vandervelt, thank you very much for these insights.