Hoping to attract talent from a limited pool, Asian companies are now paying higher executive salaries than Western European businesses, and will catch up to U.S. levels by 2013, according to a recent report by Mercer.
In contrast, salaries in the United States have stagnated due to the financial crisis and weak economy. Another factor has been the intense scrutiny of executive pay in America and Canada as shareholders and regulators demand transparency and alignment of pay and performance, according to Mercer.
"In my mind, the democratization of pay around the world is a good thing," says Gregg Passin, a partner in Mercer's human capital business in New York. The Mercer report surveyed consultants familiar with compensation in emerging economies, including India, China, Malaysia and the Middle East.
"Obviously, salary levels in Asia are getting closer and surpassing [those in western countries]," Passin says. "At the executive level ... local nationals, whom we have been educating and have been trained by multinationals, are now in competition. It's not just [within] multinationals, but domestic companies. The pay levels have an effect. These are no longer the low-cost places to do business."
That is having an impact on the manufacturing sector as well.
An analysis by The Boston Consulting Group finds that the United States may experience a manufacturing renaissance within the next five years as the wage gap with China shrinks and some U.S. states become more attractive to companies.
Flexible-work rules and various government incentives are making some states -- including Mississippi, South Carolina and Alabama -- increasingly competitive as low-cost sites for manufacturing, according to BCG, which is headquartered in Boston.
Chinese wages are "climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor," says Harold L. Sirkin, a BCG senior partner. As the value of the yuan continues to increase, the gap between U.S. and Chinese wages is narrowing rapidly.
Businesses throughout Asia and the Middle East are riding an inflationary bubble, according to Mercer.
Average executive salaries in key Asian countries have increased by an average of 7 percent, with the notable exception of Japan.
Middle Eastern states, such as Saudi Arabia, Kuwait and the United Arab Emirates, are especially competitive. Companies there are introducing deferred bonus plans and annual incentive programs that are linked with performance measures. The Mercer survey predicts base salaries there will increase by 6 percent to 7.5 percent in 2011.
"In these countries, the inflation rate is two or three times what it is here," says William Sheridan, vice president of international human resource services at the National Foreign Trade Council in New York.
"The Mercer analysis confirms what we hear about from our corporate members," he says.