A few months ago we started to write a "small series within this series. In the articles there was a question of growth markets with regard to possible risks of mergers and acquisitions and in terms of growth opportunities in markets specifically to highlight the example of Russia. Today is the fourth part – the issue of remuneration in emerging markets, especially in Russia.
Emerging markets are characterized by a huge potential market opportunities, interesting opportunities for cooperation, cheap labor and new sources of raw materials, but also by the volatility of exchange rates, by default, and by possible policy interventions. This image has not changed by the global financial crisis. Brazil, India and China have overcome this, however, faster than Russia, where by the financial crisis, perhaps, some trends have, such as the availability of technical and managerial change. These are now more than ever available.
In principle, emerging markets are still characterized by difficulties that are often underestimated by foreign investors. The Russian labor market is a prime example of the problem of a dynamically growing but highly unpredictable market. The remuneration shows exciting developments that are in an emerging market only after several years reality.
The labor market in the changing times
As the largest country in the world is the Russian Federation for investors is of significant interest. The rush by foreign companies and the huge economic boom of recent years have added to the labor market in Russia strong. Despite country flight (in the first place towards Moscow) and a demographically younger society than, for example in Western Europe, the demand for qualified employees disproportionately within the last ten years.
The recovery and above all the commitment of key workers have been a challenge for many international companies. These were not only confronted with the generally high demand for labor, but also competition with Russia’s large companies, the "excessive" wage claims of candidates met more readily. Staff favorite local businesses not only because, but also because of the long ladder, which is in foreign subsidiaries not simply given. While in many emerging markets, a position in a foreign company is considered a matter of prestige, this was used in Russia more as a springboard for a career in a Russian company.
Nor should we forget that Russia only in the 90 years the transformation of the buyer-seller market went through and changed with this change in no time the entire business as well as a number of occupations. This meant a paradigm shift, and suddenly no longer the procurement was at the center, but the successful sale. It is also to certain know-how only in recent years placed emphasis, such as International Accounting or certain areas in plant construction, or research.
Since various training routes but only a few years will be offered presses, this is the average age of recruits. These influences, combined with the demographic realities and the high demand, explain why is the average age for managers in Russia by up to 80-10 years lower than in Germany.
Impact of the economic crisis
The high demand for skilled employees, the average salaries grew rapidly with annual growth rates of 15-25%. While most countries are moving in Central and Eastern Europe, only gradually to the Western European standard, have in the Moscow region, especially for executives and professionals in medium to large enterprises salaries established at Western European level. The differences in structure and level are huge. Held so margins may, within a position in different companies make up the 20 to 30 times. And depending on the respective region, the average salaries are often only around 30-40 percent of the salaries of Moscow.
Due to the impact of the financial crisis, the high salary increases were slowed down considerably. They are in the year 2010 with less than 10%, approximately equal to the projected inflation rate. And the situation on the labor market has improved markedly. While companies in recent years, sought desperately for qualified staff, they had in 2009 because of the impact of the crisis, making decisions regarding staff reductions such as recording stops, reduced working hours, wage cuts or layoffs.
Such a district has been implemented by the Kienbaum in a study of the companies surveyed in 2009 layoffs. A clear majority of companies registered last year, an increase in applications. With the salary expectations found almost half of the companies more moderate wage demands and the turnover rate seems a bit backward. However, it is expected that immediately follow in particular the salaries, if demand in the job market again significantly increases.
Repositioning of the HR
The fact that some companies were actively operating staff can be a positive effect on the attitude of the employees. For creating pressure on the labor market situation further, is still barely strong loyalty of employees to their company and the strong focus on short-term incentives. If a more lucrative offer in view, an employee is quickly ready to give up his old job. The economic crisis, the job security is gaining in importance again something will change and the willingness of qualified employees may hold for some time in the frame. Nevertheless, the Russian labor market for Persona lists will continue to be a challenge.
Another problem with which to fight against all emerging markets, is the almost non-existent or completely missing personnel strategy. A personnel department, if any, has primarily the task of recruitment and legal and accounting management of HR agendas. It is at best a staff position in the company. A medium-to long-term strategy based on the company’s ethos remains the same on the track such as a successor regime. This does not necessarily only for domestic firms. International investors often find themselves in this dilemma if a global HR strategy is missing in the Group or the Russian market for longer-term orientations – erroneously – perceived as too unpredictable.
But a solid and sustainable HR strategy is essential, especially in volatile markets. It is not enough if the personnel policy of a company is to respond to short-term changes in the short term within the meaning of a "hire and fire" mentality. Just an unstable labor market and huge salary ranges require a well thought-out HR management with corporate strategy as a basis, since staff strategies differ substantially depending on the long-term business objective (such as market entry vs. Vs. growth. Securing market share).
An additional, particularly in Russia-standing problem is the high turnover of senior staff who are already in the article "How the right minds are provided in growth markets" has been described. To counter this fluctuation, various incentives can be created: in addition to the market situation appropriate (fixed and performance), financial incentives are paid as a loyalty bonus after three to five years or a life insurance, which is obtained after several years of service is crucial.
In addition, the future prospects for the employee to be interesting investment in the workforce in terms of training (including headquarters) are considered as desirable as with equivalent work related opportunities for advancement within the company, particularly in Western Europe. Such measures can help to make the occupation of the position to a long-term success. The compensation is in any case an important control and incentive tool that must be designed accordingly.
Implications on the remuneration practices
Especially in the Russian Federation have been shown by the boom of recent years and the consequent enormous economic opportunities Extremrelationen between fixed and variable pay component. There were field workers, which showed a basic salary of 20 percent and a commission percentage of 80%.
The variable component is typically determined by the contract and based on pre-defined benchmarks. These include the management of primary profit and sales figures. Among executives play in addition to these qualitative characteristics such as leadership or customer satisfaction an important role. For experts, professionals and Fach-/Arbeitern are mainly qualitative values used as reference for a variable compensation (except sales / field where the turnover is still at the center).
The economic crisis, however, employees were first confronted with the fact that the variable component is not self and in fact based on the performance of the employee and / or the company. While the basic salary has increased in 2010, the effective variable compensation paid by an average of 30-50% have fallen. This would show a further change due to economic slowdown, which is that workers in the future lay more emphasis on a fixed salary and adequate in relation to the variable portion will be smaller.
The companies, however, allows a variable compensation significantly more freedom of movement, as shall be made during difficult economic periods not immediately workforce needs, but mitatmen personnel with the company’s success ". In profitable years, the employees of their performance according to the mitpartizipieren achieved profits of the business.
View
The challenges of a volatile market like the one in the Russian Federation are massive labor shortages and the difficulties associated with the employee recruitment and retention of key workers and employer branding, remuneration structures in the form of incentive systems adapted to local conditions and individual company structure. In addition adequate salaries come at enormous bandwidth, legal and accounting nuances and other aspects. The future of a successful investment in an emerging market lies in the successful management of all these factors. This can not be left to chance. It takes a long-term, strategic and thus sound personnel policies that begin to international investors already in the headquarters must.
The Co-author:
Mary Smid is a Senior Consultant at Kienbaum Consultants working in Vienna, where she oversees the compensation consulting for Austria and Central / Eastern Europe. She holds a degree in Japanese Studies and American, trained as a MBA (Finance emphasis) and the U.S. state examinations for accounting / tax advice.
