Workers in many of the world’s labor markets have reason to celebrate in 2016—and they’ll have a little extra cash to do so. According to Korn Ferry Hay Group’s 2016 Salary Forecast, workers in most regions will, on average, see their biggest pay increase in three years. Real wages, which are average increases adjusted for inflation, will hit roughly 2.5%, with some regions experiencing markedly higher increases.
Two factors driving the increase are actual wage growth because of increased demand for skilled workers combined with historically low inflation, according to the report. North America, Europe, Africa, the Middle East, and Asia are all poised for growth, but the projected real wage growth in various countries has significant variations.
- Lebanon: 11.5% wage growth for 2016
- China: 6.3% wage growth for 2016
- India: 4.7% wage growth for 2016
- Germany: 2.7% wage growth for 2016
- United States: 2.7% wage growth for 2016
- Canada: 2.6% wage growth for 2016
- United Kingdom: 2.3% wage growth for 2016
While workers in Latin America will see the largest overall increase in salaries in 2016 at 11.4%, the region’s high 12.8% inflation rate leaves them with real wage cuts of 1.4%. In Ukraine and Venezuela, political turmoil and high inflation have led to real wage decreases of 36.8% and 52.6%.
When talent is more expensive, companies need to focus on their retention strategies because the cost of replacement jumps, says Paul McDonald, senior executive director for international staffing firm Robert Half International. A 2014 report by Robert Half found that the top three reasons employees leave jobs are:
- Inadequate salary and benefits (38%)
- Limited opportunities for advancement (20%)
- Unhappy with management (16%)
Skilled and professional-level employees are especially in demand, so retention requires keeping a close eye on the needs of employees and being able to offer the salary, benefits, and other perks that matter to them. For example, December 2015 research from the company found that employees in the U.S. and Singapore really want more vacation time, while some CFOs thought they valued wellness benefits.
Many companies simply stick to one performance review each year and a stagnant annual budget that isn’t nimble enough to adjust to employee needs. Instead, McDonald recommends quarterly management check-ins to monitor the status of the most in-demand skill sets to ensure that benefits are up to snuff compared to competitors. He’s an advocate of awarding spot bonuses or perks for exceptional performance. It’s also critical to show in-demand employees that there is a path to advancement, so a renewed focus on training and developing candidates for promotions internally can help retention, he says.
“The morale it creates, the culture it creates will pay you back handsomely as an employer,” McDonald says. “[Promoting from within] is a primary retention tool that most employers overlook on a regular basis.”
International HR consultant Mikaela Kiner, founder of uniquelyHR in Seattle, says that employee retention is also influenced by culture and individual differences. While markets like the U.S. place heavy emphasis on compensation and even company values, some regions value formality. For example, she found that when she worked in India, meaningful titles and title progression mattered to many employees, even if they didn’t come with big salary bumps. She also says you may be fighting a losing battle if you’re not paying competitively.
“People know they can significantly grow their compensation only by leaving a company. Or I’ve heard people say if they would quit and get rehired, I’d make more money than if I stay, even if I’m an excellent performer. With the external market driving up wages so much, the company is putting itself in a very bad position, because they’re paying a premium for an unknown quantity,” she says.
The solution might be variable compensation in the form of true pay for performance. Instead of fixed bonuses, set metrics and create incentives for performance that matters to the company, while giving employees the opportunity to see growth in their compensation based on their contributions, she says.