Financial services firms that are entering new and emerging markets to expand their coverage or save on costs, face multiple challenges and opportunities. Understanding geographic differentials around pay in addition to factors like the economic environment, talent supply, inflation/foreign exchange (FX) and local regulations all have a part to play when determining how to pay employees in different markets.
We share below five key tactics for compensation and HR professionals in financial services institutions to help them gain a holistic understanding of these factors as well as the business intentions for the market. The goal? Of course, to deliver the best business and people outcomes.
The economy in emerging locations often is more volatile than in developed countries. Additionally, FX and inflation fluctuations may create a unique set of pay pressures, such as incremental salary review cycles in each year or restrictions around paying in foreign currencies. Understanding the economic landscape is critically important in shaping your firm’s overall organization design and deployment.
When developing an overall firm location strategy and considering target destinations for new operations, metrics such as workforce size, both workforce demographic and levels of education, unemployment, minimum wage and so on are critical. These all are useful guides for understanding not only the per-capital cost of talent in a market, but the size of the labor market, the skill level of talent and the amount of available talent to be secured. Figure 1 provides an example of India’s economic
Multiple economic indicators should be explored and understood before entering a new or emerging market.
Many financial institutions have identified a core competitor group in their headquarters location that they benchmark compensation against. This is often considered to be a global peer set as well. However, as firms move into strategic and emerging locations, the talent landscape and core competitors often are completely different. Similarly, the talent they want (often technology related) may come from other industries.
As an illustration , a bank in the United States may consider its top competitors in the United States and United Kingdom to be their primary competitors: Bank of America, Barclays, Citi, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, NatWest, UBS and Wells Fargo. However, when benchmarking staff in Brazil, the bank would want to consider other local banks in that market such as Banco Bradesco, Itaú Unibanco and BTG Pactual, in addition to primary competitors. Typically emerging markets need a local approach to ensure a compelling talent value proposition.
There is a broad set of compensation practices that must be understood in each market, ranging from things like incremental months of salary per annum (common in Latin America and Asia) to the use of sign-on bonuses and pay equity regulations.
Beyond these topics, some markets — particularly in the Middle East and Asia — allowances may make up a large portion of overall pay. Trying to apply a headquarters-location approach to locally offered benefits and allowances would make it virtually impossible to compete for talent locally. Figure 3 offers Mexico’s compensation practices as an example.
Insights into market-specific compensation practices helps to inform how a financial services firm will design its pay structure in a given market.
As mentioned, firms often seek lower-cost locations for their support talent and, in many cases, for technology talent. A financial services firm looking to offshore tech staff in Malaysia needs to benchmark multiple sectors (typically financial services, technology and general industry) to understand the full picture of the cost for talent.
Some sector-pay differentials in headquarter locations may exist in emerging locations as well.. Also, finding less expensive talent may lie in unexpected industries (Figure 4).
When shopping for talent, it is important for organizations to look across multiple factors, including industry, to identify competitive pay rates.
Across all locations, much of pay is managed on a year-over-year basis. The best pay decisions are made in the context of understanding the trends— and this is even more relevant in emerging locations (Figure 5).
Understanding where salary budget increases have been in the past may help inform how an organization approaches its annual salary increase process.
Entering any new or emerging market presents a slew of challenges for financial services firms. Your approach to attracting, retaining and motivating the key talent your organization needs is complex but arming yourself with the right information, and understanding all aspects of each market will ensure your organization and employees’ future success.
