For many HR professionals, the fourth quarter of every year is a traditional time for budgeting and salary negotiations. Our annual Kienbaum Salary Forecast provides the people making these decisions with up-to-date figures and hard data on next year’s expected increases in compensation levels. This year’s forecast again surveyed more than 1500 HR experts in 36 countries worldwide about their plans and predictions. The resulting data allows reliable statements about the likely trends in executive compensation and the salaries of specialists and qualified professionals in 2018. And the picture seems positive: In Germany, salary packages are expected to grow by more than three percent, surpassed in Western Europe only by Luxembourg.
One reason for the positive forecast for 2018 lies in the good state of the economy in general: Turnover and revenue are increasing for multinational corporations and SMEs alike – and this is trickling down into the pockets of employees. German specialists and professionals will benefit most from this situation with average salary increases of 3.3 percent, slightly higher than the growth rates in top executive and board compensation. The rising salaries are not surprising in a time of near full employment and a positive economic outlook. As inflation is expected to remain steady below two percent in 2018, the nominal salary increases will make themselves felt in the form of a genuine increase in spending power.
Even though the positive momentum seems to remain unbroken in the salary and income data on the continent, there are distinct differences in salaries across Europe. The familiar north-south divide will remain. Greek, Portuguese, and Spanish professionals can expect their salaries to increase by between 2.2 and 2.4 percent. As generally expected, Swiss salaries will only see an average increase of 1.2. This is slightly lower than in neighbouring countries and due to the already high standards and the continuing low inflation rates.
The UK represents a special case in this year’s survey. As inflation rates are expected to reach 2.7 percent, British professionals should prepare for a drop in real-term incomes in 2018. The aftershocks of Brexit and the devaluation of the pound are behind the rising prices and will cause pay packages in Great Britain to shrink in terms of purchasing power.
Looking east, pay packages from the Baltics to the Balkans and on to Turkey are growing by almost five percent, at almost double the rate of the pay increases in Western Europe. However, the region is far from a monolithic block: While the states on the EU’s eastern borders are seeing increases between 2.9 and 4.8 percent, professionals in Russia, the Ukraine, Turkey, and Belarus can expect far higher increases between 5.7 and 7.6 percent.
The latter examples show that even substantial salary increases in absolute numbers do not necessarily leave professionals better off. High inflation rates are eating up nominal increases and causing a downturn in incomes in terms of purchasing power, a real-term drop of up to 3.2 percent.
The feedback from the study’s respondents show that the single most prominent factor behind salary increases is access to a pool of sufficiently qualified personnel, especially trained professionals. Taking higher salaries as a form of investment into human capital – spending to retain valuable staff for the company – ‘cash’ is more than a simple incentive or retention tool, a display of mutual loyalty that has the potential to become a genuine competitive advantage for companies in times of high staff turnover and often fragile working relationships in ad-hoc project teams.
With these trends in mind, the focus topic of this year’s salary forecast asked its participants about incentives and their evolution in the transition to what has become known as Work 4.0 or New Work. One essential revelation of the study is that this trend towards digital work has taken hold at almost two thirds of all companies, usually in the form of a new office experience. It also shows that incentive systems will continue to be the key HR tools for companies to attract and retain professionals for the long term.
It remains to be seen how the compensation or performance management systems of the future need to be designed to have a genuine incentivizing effect. Our study shows that monetary considerations will continue to have a substantial motivating effect even in times of new work concepts. Bonus payments will remain an important incentive for performance management and will continue to figure prominently in the target agreements of professionals everywhere.
The study reveals that basic, fixed salaries are experiencing a veritable renaissance in the time of #NewPay and are having an impact on job design in the world of work 4.0. The nature of compensation systems is evolving and opening up to accommodate more non-monetary incentives, by including work-life balancing, sabbaticals, or training opportunities in the scope of performance management. For three quarters of the respondents, such non-monetary incentives will eventually hold their own compared to traditional bonus payments. Kienbaum has teamed up with Capital magazine for an eye-opening study that explores the hard facts of this important phenomenon.
As the digital transformation is continuing to affect businesses everywhere and bringing novel business models in its wake, innovation and risk affinity are becoming paramount for businesses everywhere. Companies that ignore these trends will miss vital opportunities and risk losing ground. They need people who are ready and willing to take risks. But too few companies are offering genuine incentives to do so. More than two thirds of the study’s participant believe that their current compensation systems offer no real incentives for professionals to engage in experiments or consciously take risks to get their businesses ahead.
The introduction of modern performance management concepts remains a challenge for many companies. While performance management is beginning to move away from a rigid adherence to the calendar year towards more granular performance cycles, the requisite structures are only slowly playing catch-up. As many a company’s workforce now includes people from five distinct generations, individual motivation also needs to be channeled and reflected accordingly in performance management systems. Leadership concepts and practices need to account for this basic change.
Few would disagree that the nature and forms of work have changed and will continue to change. The challenge for companies now is to come up with fitting new work concepts and establish them meaningfully in the hard reality of business life.