How can your company cut its labor costs? In 2018, the most popular answer may be computer learning and automation, but there are other, more analogue solutions available to almost every employer in the world. Namely, many employers may want to consider looking at neighboring markets for cheaper destinations.
Indeed, labor costs can vary dramatically from country to country, making certain markets considerably more appealing to employers than others. But identifying the best market for keeping labor costs down is about more than comparing minimum wage laws or average national salary. For real, actionable information, HR professionals need to know the market rate for individual job roles within an economy, including fluctuations for career and experience level.
Even when armed with this information, there are important tenets of employee pay and compensation for which HR professionals need to look.
Cost Ratio Comparison
It may seem like the obvious starting point, but companies interested in finding markets that offer lower labor costs should look to compare the cost ratio between prospective markets. Whether using annual base salary (ABS) or annual total cash (ATC) compensation, cost ratio comparisons allow HR professionals to directly compare the rates for a given job between two markets. This allows decision makers to translate abstract compensation figures with inconsistent currencies into a savings impact on their company’s bottom line.
Another means of measuring the costliness of labor, salary variance shows the difference between a market’s highest and lowest compensation rates, relative to those rates in other markets within a given region. Though abstract, salary variance allows companies to see whether all employers within a market are offering similar compensation for a given position. Wide salary variations within a country may be due to difference in skill levels, while narrow variance suggests high demand for a particular skill. Either way, salary variance can be a useful tool for determining what the competition for labor is like.
Salary as a Percentage of Total Cash Compensation
Lastly, salary as a percentage of total cash compensation casts light onto how organizations within a market view and account for incentives, rewards, and benefits. By measuring how annual base salary compares to total cash compensation, employers can see which positions are more stable within a given market, which portions of the labor pool may rely on performance rewards, and how companies perceive a given position’s impact on organizational success.
Nailing down the right market for your organization can be a major step towards organizational reconfiguration, expansion, and success. While determining the right market may be a timely and labor intensive endeavor, it is likely to pay dividends in the form of lower labor costs and greater profits over time.
Interested in learning more about pay levels around the world? Don’t miss Mercer’s Global Pay Summary publication, an around the world guide to market pay rates for 50 benchmark positions in 110 markets.