Bringing international salaries and pensions to local realities

For instance, the cost of living in some countries may be significantly higher than in the home country, leading to the need for higher salaries. Similarly, the retirement age and pension benefits may vary, posing challenges in aligning pension schemes.

We’ll present a detailed case study approach to understanding the nuances of global compensation strategies, focusing on how companies can gather and analyze salary and pension data effectively.

This narrative will also address the critical issue of aligning pension schemes with business goals, investigating how variations in pension plans correlate with employee performance and engagement across different regions.

• What innovative approaches have you seen or implemented to effectively manage and analyze salary and pension data in your organization?
• How have these strategies influenced business outcomes and employee satisfaction?

The ILO Global Wage Report offers a nuanced analysis of how recent crises, including the COVID-19 pandemic and the subsequent cost-of-living crisis, have influenced global wages and purchasing power. It reveals a concerning trend: for the first time in the 21st century, global real wage growth has become negative despite sustained increases in labor productivity.

This divergence is particularly stark in high-income countries and underscores a widening gap between labor productivity and wage growth. The impact is most acute among low-income households, which spend much of their income on essentials and have faced sharp price increases.

According to Living Wage insights:

• The living wage in the U.S. for a family of four is significantly higher than the federal minimum wage.
• This disparity necessitates individuals working multiple jobs or seeking public assistance to meet basic needs.
• There is notable regional variation in the required living wages across different parts of the country.
• Childcare and housing are highlighted as the most substantial family costs, greatly influencing the living wage calculation.

A study of the salary needed to live comfortably in large U.S. cities in 2024 using the 50/30/20 budget rule (where 50% for needs, 30% for needs, and 20% for savings or paying down debt) includes:

• A person’s average salary to live comfortably in major US cities is approximately $96,500.
• Typically, families need a median combined income of about $235,000 to avoid living paycheck to paycheck.
• The highest salaries for families in San Francisco, San Jose, Boston, Arlington, New York, and Oakland are over $300,000.
• New York is the most expensive for singles, with an annual salary of $138,570.
• Cities like Houston, El Paso, and Lubbock, Texas, have the lowest wages, around $75,000 for singles.

These studies of living wage requirements in various U.S. cities highlight the economic implications for business and the labor market. Because salary requirements vary significantly by location, businesses may need to review salary structures and consider location strategies to attract and retain workers, especially in high-cost areas. This geographic disparity in the cost of living can also affect labor mobility, potentially leading to regional labor shortages or surpluses and requiring adaptation of corporate and H.R. strategies to manage these economic and labor dynamics effectively.

The pandemic saw significant wage reductions, particularly affecting low-wage earners, workers in the informal sector, and women. The financial strain has been compounded by the need to repay debts incurred during the pandemic, exacerbated by rising interest rates and falling incomes.

Without immediate and effective intervention, the decline in honest workers’ incomes may continue, potentially triggering a more profound economic recession with reduced aggregate demand. Such a scenario risks increasing inequality and provoking social unrest, underscoring the urgent need for action.

Tough wage policies and increased international cooperation to address these issues underscore the need for global solidarity to promote social justice and reduce inequality in the workplace. Eurosystem staff forecasts inform this June 2023 analysis and a survey by the European System of Central Banks’ Working Group on Public Finance (WGPF).

Public sector wages, which have outpaced inflation since the introduction of the euro, experienced a notable real decline in 2022. Projections for 2023-2025 indicate a partial recovery driven by backward-looking indexation schemes or adjustments for the prior year’s wage cuts. Between 2001 and 2021, Eurozone civil servant earnings grew to 2.3%, modestly above the rates of private sector wages (2.0%) and inflation (1.7%). However, this growth has varied during economic crises.

To address these challenges, policymakers could consider targeted measures such as indexing minimum wages to inflation and productivity growth, implementing region-specific wage standards, and enhancing social safety nets to cushion the impact on the most vulnerable populations. For instance, a recent European Commission proposal suggested adjusting minimum wages periodically to reflect changes in the cost of living and productivity, aiming to reduce wage inequality across the bloc.

Future wage trends in the Eurozone require careful monitoring to balance economic stabilization and fiscal sustainability, especially in countries grappling with high debt levels and aging populations. The variations in wage growth across the region reflect differing inflation rates, fiscal positions, and other local factors, underscoring the complexity of our current economic market.

Considering the growing gap between salary growth and living costs, international cooperation should focus on economic recovery and structural reforms that promote wage equity. Enhanced global coordination on fiscal policies, such as those proposed in the G20 wage equity framework, could help stabilize wage trends and reduce economic disparities.

In OECD countries, the workforce is becoming increasingly age-diverse due to rising longevity and technological advancements. However, this shift also highlights the challenges of integrating a multigenerational workforce. For instance, large companies report a low percentage of employees above age 64, which is expected to increase significantly as the population ages. The proportion of the population aged 50 and over is projected to increase from 37% in 2020 to 45% on average across OECD countries by 2050,

Furthermore, youth unemployment remains a persistent issue. During the global economic crisis in 2010, nearly 15 million young people were unemployed in the OECD area, indicating a significant challenge in integrating younger workers into the labor market.

This demographic trend is not uniform worldwide, as seen in countries like Japan and Nigeria, which represent extremes in age dependency ratios. Japan has an older population with a high old-age dependency ratio, while Nigeria has a predominantly young population with a high youth dependency ratio.

Further analysis reveals varied approaches to similar challenges. For example, in Europe, several countries have adopted flexible retirement age policies to cope with an aging workforce, while in Asia, nations like Singapore have intensified efforts to integrate technology in managing pension schemes, ensuring sustainability despite demographic pressures.

Legislative measures have been implemented to deal with the challenges, such as the SECURE Acts of 2019 and 2022 in the United States. These acts are designed to adapt the pension frameworks to accommodate the developing demographic situation better, ensuring that aging workers and younger generations benefit from more inclusive retirement savings options. One more essential benefit of these acts is reducing the years of service required from three to two for eligibility in 401(k) and 403(b) plans. This change is expected to significantly increase retirement savings among part-time workers, who were previously excluded due to their part-time or variable hours status, by allowing them to start saving for retirement earlier in their careers.

Retirement plan changes are:

• In 2024, the elective deferral limit for 401(k) and 403(b) plans will increase to $23,000. This significant increase is a response to the rising cost of living and the need for individuals to save more for retirement. It provides employees with a higher contribution limit for their retirement savings. The catch-up contribution limit remains at $7,500. The annual contribution limit for defined plans (including deferrals and employer contributions) will increase to $69,000 in 2024. The limitation on compensation under tax-qualified retirement plans will increase to $345,000 by 2024.
• Innovations in plan offerings and benefits include the option for employers to match student loan repayments as retirement contributions and the introduction of emergency savings accounts linked to retirement plans. These developments, including adopting auto-enrollment and auto-escalation, make retirement plans more attractive, significantly boost participation rates, and address broader financial wellness needs, demonstrating their effectiveness in enhancing retirement readiness across the workforce.

Furthermore, there’s a push towards more personalized retirement solutions like managed accounts, which offer customized advice based on individual financial situations. This trend is facilitated by the growing integration of technology into financial planning, allowing for more tailored investment strategies that can adapt to unique employee needs.

For instance

Some companies automatically enroll new employees in their retirement plans unless they opt out, while others automatically increase the contribution rate each year. These features have significantly boosted participation rates and overall retirement readiness, demonstrating their effectiveness in encouraging employees to save for retirement.

These features are becoming more common across all sizes of plans, reflecting a broader industry shift towards reducing the inertia that often prevents employees from saving sufficiently for retirement.

While these legislative changes mark significant progress, they also present challenges, such as potential increases in administrative costs for employers and the risk of insufficient savings for workers who don’t opt to increase their contributions. Discussing these potential drawbacks is essential to fully understand the effects of the SECURE Acts and ongoing pension reforms.