Planning GlobalCompensation Budgets

for 2017

2 | ERI Economic Research Institute | Planning Global Compensation Budgets for 2017 | June 2016

Planning Global Compensation Budgets for 2017

As we approach 2017 global financial budgeting and compensation planning, it is timely once again to provide ERI readers with insight into compensation analytics by taking a look at a forecast for the world economy and its effect on 2017 salary increase budgeting. Consider key trends from the recent World Economic Outlook as reported by the International Monetary Fund1 (IMF):

1. “Global growth continues, but at a sluggish pace that leaves the world economy more exposed to risks, says the IMF’s latest World Economic Outlook (WEO).

• The WEO forecasts global growth at 3.2% in 2016 and 3.5% in 2017, a downward revision of 0.2% and 0.1%, respectively, compared with the January 2016 Update . . .• In a recent speech, IMF Managing Director Christine Lagarde warned that the recovery remains too slow, too fragile, with the risk that persistent low growth can have damaging effects on the social and political fabric of many countries . . .

2. Moderate recovery in advanced economies• Growth in advanced economies is projected to remain modest at about 2%, according to the WEO. The recovery is hampered by weak demand, partly held down by unresolved crisis legacies, as well as unfavorable demographics and low productivity growth . . .

3. Emerging and developing economies slowing further• While emerging markets and developing economies will still account for the lion’s share of world growth in 2016, prospects across countries remain uneven and generally weaker than over the past two decades.• The WEO projects their growth rate to increase only modestly—relative to 2015—to 4.1% this year and 4.6% next year.

4. Risks on the rise• In the current environment of weak growth, risks to the outlook are now more pronounced• These include:

A return of financial turmoil, impairing confidence. For instance, an additional bout of exchange rate depreciations in emerging market economies could further worsen corporate balance sheets, and a sharp decline in capital inflows could force a rapid compression of domestic demand.A protracted period of low oil prices could further destabilize the outlook for oil-exporting countries.A sharper slowdown in China than currently projected could have strong international spillovers through trade, commodity prices, and confidence, and lead to a more generalized slowdown in the global economy.Shocks of a noneconomic origin—related to geopolitical conflicts, political discord, terrorism, refugee flows, or global epidemics—loom over some countries and regions and, if left unchecked, could have significant spillovers on global economic activity.

• On the upside, the recent decline in oil prices may boost demand in oil-importing countries more strongly than currently envisaged, including through consumers’ possible perception that prices will remain lower for longer.”

Source:1. “IMF Survey: Global Economy Faltering from Too Slow Growth for Too Long.” International Monetary Fund, 12 Apr. 2016. Web. 20 Apr. 2016. (http://www.imf.org/external/pubs/ft/survey/so/2016/NEW041216A.htm)

3 | ERI Economic Research Institute | Planning Global Compensation Budgets for 2017 | June 2016

Projected 2017 Salary Increases by Country and Historical Trends

An analysis of early projections of 2017 salary increases across 72 countries is provided in Table 1 to support businesses in next year’s salary increase budgeting. This table also includes the International Monetary Fund’s updated research on 2015, 2016, and 2017 actuals/projections for unemployment, growth in gross domestic product (GDP), and change in the consumer price index (CPI). This advanced look at 2017 salary increase projections is based on ERI Economic Research Institute’s extensive database, plus global historical trends and projections. Data from governmental resources, publications, and over 25,000 companies were assessed in this review.

Table 1 – 2015-2017 Global Salary Increase Trends with Key Economic Indicators

Unemployment Rate2 Gross Domestic Product2 Consumer Price Indices2 Salary Increase1

% Labor Force % Change from Prior Year % Change from Prior Year % Change from Prior Year

2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017

Argentina 6.5 7.8 7.4 1.2 -1.0 2.8 - - 19.9 28.0 30.0 25.0

Brazil 6.8 9.2 10.2 -3.8 -3.8 0.0 9 8.7 6.1 8.0 7.9 7.3

Canada 6.9 7.3 7.4 1.2 1.5 1.9 1.1 1.3 1.9 3.0 3.0 3.0

Chile 6.2 6.8 7.5 2.1 1.5 2.1 4.3 4.1 3.0 5.3 5.0 4.6

Colombia 8.9 9.8 9.4 3.1 2.5 3.0 5.0 7.3 3.4 - 4.6 4.5

Costa Rica 8.3 3 8.2 3 8.1 3 3.7 4.2 4.2 0.8 1.1 3.0 5.8 5.5 5.7

Mexico 4.3 4.0 3.9 2.5 2.4 2.6 2.7 2.9 3.0 4.7 4.7 4.6

Panama 5.1 3 5.1 3 5.1 3 5.8 6.1 6.4 0.1 0.8 2.0 5.3 5.0 5.2

Peru 6.0 6.0 6.0 3.3 3.7 4.1 3.5 3.1 2.5 - 5.0 5.0

United States 5.3 4.9 4.8 2.4 2.4 2.5 0.1 0.8 1.5 3.0 3.0 3.0

Venezuela 7.4 17.4 20.7 -5.7 -8.0 -4.5 121.7 481.5 1,642.8 54.0 65.0 85.0

Australia 6.1 5.9 5.8 2.5 2.5 3.0 1.5 2.1 2.4 3.4 3.5 3.6

China 4.1 4.1 4.1 6.9 6.5 6.2 1.4 1.8 2.0 8.0 8.0 8.0

Hong Kong 3.3 3.2 3.1 2.4 2.2 2.4 3.0 2.5 2.6 4.4 4.5 4.5

India 3.5 4 3.4 4 3.4 4 7.3 7.5 7.5 4.9 5.3 5.3 10.8 10.9 10.9

Indonesia 6.2 5.9 5.7 4.8 4.9 5.3 6.4 4.3 4.5 9.5 9.2 9.2

Japan 3.4 3.3 3.3 0.5 0.5 -0.1 0.8 -0.2 1.2 2.4 2.5 2.5

Malaysia 3.2 3.2 3.2 5.0 4.4 4.8 2.1 3.1 2.9 5.9 5.7 5.8

NewZealand 5.8 5.9 5.8 3.4 2.0 2.5 0.3 1.5 1.9 3.0 3.2 3.3

Pakistan 6.0 6.1 6.1 4.2 4.5 4.7 4.5 3.3 5.0 12.0 11.2 11.5

Philippines 6.3 6 5.9 5.8 6 6.2 1.4 2 3.4 6.8 6.7 6.8

Singapore 1.9 2.0 2.0 2.0 1.8 2.2 -0.5 0.2 1.3 4.4 4.3 4.5

SouthKorea 3.6 3.5 3.3 2.6 2.7 2.9 0.7 1.3 2.2 5.0 5.0 5.1

Taiwan 3.8 3.8 3.9 0.7 1.5 2.2 -0.3 0.7 1.1 3.5 4.0 4.0

Thailand 0.9 0.8 0.7 2.8 3.0 3.2 -0.9 0.2 2 5.6 5.9 6.0

Vietnam 2.4 2.4 2.4 6.7 6.3 6.2 0.6 1.3 2.3 10.4 10.4 10.5

Sources:1. Economic Research Institute2. International Monetary Fund. 2016. World Economic Outlook: Too Slow for Too Long. Washington, April.3. International Monetary Fund. April 2016. World Economic Outlook Database4. World employment and social outlook: Trends 2016 / International Labour Office. – Geneva: ILO, 20165. World employment and social outlook: Trends 2015 / International Labour Office. – Geneva: ILO, 2015; updated January 20, 2015

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4 | ERI Economic Research Institute | Planning Global Compensation Budgets for 2017 | June 2016

Unemployment Rate2 Gross Domestic Product2 Consumer Price Indices2 Salary Increase1

% Labor Force % Change from Prior Year % Change from Prior Year % Change from Prior Year

2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017

Algeria 11.3 11.6 12.1 3.7 3.4 2.9 4.8 4.3 4.0 - 6.5 6.3

Austria 5.7 6.2 6.4 0.9 1.2 1.4 0.8 1.4 1.8 2.6 2.9 3.0

Belgium 8.3 8.3 8.2 1.4 1.2 1.4 0.6 1.2 1.1 2.3 2.5 2.5

Bulgaria 9.2 8.6 7.9 3.0 2.3 2.3 -1.1 0.2 1.2 - 4.0 4.0

Cyprus 15.3 14.2 13.0 1.6 1.6 2.0 -1.5 0.6 1.3 - 1.7 1.8

CzechRepublic 5.0 4.7 4.6 4.2 2.5 2.4 0.3 1.0 2.2 2.0 2.5 2.8

Denmark 6.2 6.0 5.8 1.2 1.6 1.8 0.5 0.8 1.4 2.5 2.6 2.7

Egypt 12.9 13.0 12.9 4.2 3.3 4.3 11.0 9.6 9.5 10.0 10.0 10.0

Estonia 6.8 6.5 6.5 1.1 2.2 2.8 0.1 2.0 2.9 2.8 3.0 3.3

Finland 9.3 9.3 9.0 0.4 0.9 1.1 -0.2 0.4 1.4 1.5 2.3 2.4

France 10.4 10.1 10.0 1.1 1.1 1.3 0.1 0.4 1.1 2.5 2.7 2.8

Germany 4.6 4.6 4.8 1.5 1.5 1.6 0.1 0.5 1.4 2.9 3.0 3.0

Greece 25.0 25.0 23.4 -0.2 -0.6 2.7 -1.1 0.0 0.6 1.8 1.8 2.0

Hungary 6.9 6.7 6.5 2.9 2.3 2.5 -0.1 0.5 2.4 3.0 3.5 3.5

Ireland 9.4 8.3 7.5 7.8 5.0 3.6 0.0 0.9 1.4 1.8 2.1 2.2

Israel 5.3 5.3 5.3 2.6 2.8 3.0 -0.6 -0.1 0.9 2.5 3.0 3.1

Italy 11.9 11.4 10.9 0.8 1.0 1.1 0.1 0.2 0.7 2.8 2.6 2.7

Jordan 11.1 5 11.1 5 11.0 5 2.5 3.2 3.7 -0.9 0.2 2.1 6.0 5.7 5.8

Kazakhstan 5.0 5.0 5.0 1.2 0.1 1.0 6.5 13.1 9.3 - 8.5 8.5

Kenya 9.2 5 9.1 5 9.1 5 5.6 6.0 6.1 6.6 6.3 6.0 - - 8.0

Kuwait 2.1 2.1 2.1 0.9 2.4 2.6 3.4 3.4 3.5 - 5.0 5.0

Latvia 9.9 9.5 9.1 2.7 3.2 3.6 0.2 0.5 1.5 - 3.3 3.3

Lebanon 6.7 5 6.8 5 6.9 5 1.0 1.0 2.0 -3.7 -0.7 2.0 - - 6.7

Lithuania 9.1 8.6 8.5 1.6 2.7 3.1 -0.7 0.6 1.9 - 3.5 3.6

Luxembourg 6.9 6.4 6.3 4.5 3.5 3.4 0.1 0.5 1.3 3.0 2.9 3.0

Morocco 9.8 9.7 9.6 4.5 2.3 4.1 1.6 1.5 2.0 - 4.5 4.5

Netherlands 6.9 6.4 6.2 1.9 1.8 1.9 0.2 0.3 0.7 3.0 2.8 2.8

Norway 4.4 4.6 4.4 1.6 1.0 1.5 2.2 2.8 2.5 3.2 3.0 3.0

Poland 7.5 6.9 6.9 3.6 3.6 3.6 -0.9 -0.2 1.3 3.0 3.0 3.1

Portugal 12.4 11.6 11.1 1.5 1.4 1.3 0.5 0.7 1.2 1.8 2.0 2.2

Qatar 0.3 5 0.4 5 0.4 5 3.3 3.4 3.4 1.7 2.4 2.7 5.0 5.0 5.0

Romania 6.8 6.4 6.2 3.7 4.2 3.6 -0.6 -0.4 3.1 4.6 4.5 4.7

Russia 5.6 6.5 6.3 -3.7 -1.8 0.8 15.5 8.4 6.5 8.1 8.0 8.0

Saudi Arabia 5.8 4 5.7 4 5.7 4 3.4 1.2 1.9 2.2 3.8 1.0 5.0 5.0 5.0

Slovakia 11.5 10.4 9.6 3.6 3.3 3.4 -0.3 0.2 1.4 - 2.7 2.8

South Africa 25.4 26.1 26.7 1.3 0.6 1.2 4.6 6.5 6.3 6.3 6.8 6.8

Spain 22.1 19.7 18.3 3.2 2.6 2.3 -0.5 -0.4 1.0 2.4 2.3 2.4

Sweden 7.4 6.8 7.0 4.1 3.7 2.8 0.7 1.1 1.4 2.6 2.8 2.8

Switzerland 3.3 3.5 3.3 0.9 1.2 1.5 -1.1 -0.6 -0.1 2.1 2.0 2.1

Tanzania 3.1 5 3.2 5 3.2 5 7.0 6.9 6.8 5.6 6.1 5.1 - - 7.0

Tunisia 15.0 14.0 13.0 0.8 2.0 3.0 4.9 4.0 3.9 - 6.5 6.5

Turkey 10.2 10.8 10.5 3.8 3.8 3.4 7.7 9.8 8.8 9.0 8.0 7.9

Uganda 3.6 5 3.5 5 3.4 5 5.0 5.3 5.7 5.8 6.7 5.9 - - 6.8

Ukraine 9.5 9.2 8.8 -9.9 1.5 2.5 48.7 15.1 11.0 18.0 11.7 11.5

United Arab Emirates 3.5 5 3.4 5 3.3 5 3.9 2.4 2.6 4.1 3.2 2.7 4.9 5.0 5.0

UnitedKingdom 5.4 5.0 5.0 2.2 1.9 2.2 0.1 0.8 1.9 3.0 2.8 3.0

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5 | ERI Economic Research Institute | Planning Global Compensation Budgets for 2017 | June 2016

Key Observations

AmericasSalary increases are projected to remain stable at 3.0% in the United States and Canada from 2016 to 2017. Minimal change is also expected in unemployment over the same time period with Canada increasing slightly from 7.3% to 7.4%, and the United States decreasing from 4.9% to 4.8%.

Two countries in South America will continue with hyperinflation. With the change in CPI approaching 19.9% in Argentina in 2017, a 25% salary increase is projected. The situation in Venezuela is out of control, with spiraling inflation at 482% in 2016, escalating to 1643% in 2017. Salary increases are projected at 85% in 2017, but will require close observation throughout the year. Purchasing power in Venezuela continues to erode, and this dire inflationary environment is expected to experience the most significant reduction in real income in the world.

Europe, Middle East, and Africa

In the Euro zone, modest changes to unemployment and a challenging financial environment will require a cautious outlook on salary increases in 2017.

Western Europe is projected to implement 2.7% median salary increases (2.6% average) in 2017. Greece is low at 2.0%, while Austria, Germany, Luxembourg, Norway, and the United Kingdom are high at 3.0%.

Russia’s 2017 salary increases are projected at 8.0% and the Ukraine at 11.5%.

Out of the eight countries reported for the Middle East, the 2017 median salary increase is 5.0% (5.7% average).

Salary increases from 2016 to 2017 remain steady across the Middle East and North Africa for the countries reported, but the IMF reported a weakened outlook due to declines in oil prices, conflicts, and security risks.

Asia Pacific

The 15 Asia Pacific countries reported are projected to implement salary increases of 6.4% (average) and 5.8% (median) in 2017. Japan is low at 2.5%, and Pakistan is high at 11.5%.

On the positive side, India’s IMF forecast is optimistic with strong growth, and we project 10.9% for 2017 salary increases with rising real incomes. The IMF confirms that the ASEAN-5 economies—Indonesia, Malaysia, Philippines, Thailand, and Vietnam—are also performing well.

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This report was prepared by Linda L. Cox, CCP, ERI Compensation Project Manager, with research assistance from Katie Sebastian

Please email Linda Cox, CCP, at linda.cox@erieri.com with questions or comments.

Planning Global Compensation Budgets for 2017

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The 2017 projections indicate salary increase budgets throughout the majority of the world between 2.5% and 5.0%. High inflationary countries, such as Venezuela and Argentina, require close observation and action, as needed, to ensure up-to-date compensation programs. The loss of real income for employees in Venezuela, in particular, will be an important business issue.

The cautious outlook by the IMF and the continuation of modest to moderate salary increase budgets reinforce multinational companies’ ability to attract and retain key employees within these budgets. In this uncertain environment, we continue to recommend that salary increase budgets be distributed to fully recognize high performance and retention of at-risk employees. Supplementing salary increase budgets with other human capital programs, such as training and development, performance management, succession planning, short- and long-term incentive compensation, and employee benefits, will support in recognizing, rewarding, and motivating key performers.

6 | ERI Economic Research Institute | Planning Global Compensation Budgets for 2017 | June 2016

Summary