Pay on demand

With skill shortages a major problem for many employers,
those with "hot" skills can command ever-higher salaries throughout
the whole of Europe, says Bo Jones

 

In the final years of the 1990s, with the then-impending
threat of the millennium bug and the introduction of the euro, IT professionals
across Europe saw their salaries double and even triple as companies struggled
to find the people who could implement the necessary solutions to prevent
disaster.

 

Today, as the war for top talent continues to rage in the
region, it is not just IT specialists who are in demand and can ask for
ever-higher rewards. Other disciplines are also seeing dramatic increases in
their pay and compensation packages as organisations continue to battle for the
best.

 

Says Pasquale Mazzuca, executive resourcing and development
director with Belgian telecoms giant Belgacom, people such as "call-centre
operators are much sought after as these tend to be high-stress
occupations". But the best paid, he says, "are those that ‘bring in
the bacon’. That means that sales people are usually at a premium and finance
professionals are also well compensated today. And with the advent of the
dot-com era, there has also been an explosion in the demand for Web design
skills".

 

Further down the corporate food chain too, strong economic
growth has led to what seems to be a real increase in the demand for support
functions. In some cases, executive assistants have seen their compensation
levels go up 10 to 15% over the past two years.

 

These trends characterise Western Europe at least. In
Central and Eastern parts of the region, the situation is somewhat different.
Explains Belgacom’s Mazzuca, "The demographics of each region are
considerably different. In Western Europe, there is a predominantly ageing
population and therefore a decreasing workforce. But Central and Eastern Europe
(CEE) is not facing this dilemma, the issue here is more related to embracing
‘capitalistic’ ways of working."

 

In general, he has found that for all functions, "pay
levels have been much lower in CEE nations because of an egalitarian social
system that did not recognise profits or the meaning of the customer". But
as these economies have begun to grow and catch up with the rest of the region,
this has rapidly had to change.

 

"As the economies began to boom during the early
1990s," recalls Mazzuca, "there was a high-level demand for locals
with Western-style business experience and, as a consequence, these people were
paid a premium, particularly by firms such as Procter & Gamble, Volkswagen
and Philip Morris to name a few. Nowadays," he continues, "the
markets in these countries are cooling down and so the supply/demand has
changed hands, and there seems to be a stabilisation in pay levels".

 

But these high levels of compensation for some global
managers were only felt in the capital cities, according to Arthur Janta, a
Brussels-based partner of executive search firm Russell Reynolds. His
experience is predominantly in Poland, where, he says, "Warsaw saw salaries
climb higher than inflation in many cases; soon they may well reach Western
European levels of reward. The rest of the country," he explains, "is
still more asleep; someone in a general management position of a medium-sized
company will probably earn only US$70,000-80,000 a year."

 

And not only are salary levels beginning to mirror those in
the West, the way reward packages are structured is changing too. In
particular, the introduction of variable pay into the region, usually in the
form of annual bonus programmes. "For many companies," says
management and HR consultant Towers Perrin, "variable pay has become a
competitive necessity. It may also be companies’ best route to distinguishing
among high- and lower-performing employees and establishing a performance-oriented
culture. Incentives offer a way to raise and lower total compensation each year
in some proportion both to corporate and business unit results and individual
performance. This, in turn, helps to reinforce employees’ sense of connection and
contribution to the business and provides a tangible means of aligning
goals."

 

And as the battle for the best hots up, it is not only the
top performers who are seeing their compensation packages change. Down in the
engine rooms of many European organisations, new incentive-based reward systems
are finding their way into everyday business life. Without them, firms risk
losing not only their top performers but the more mediocre, yet valuable,
talent too.

 

Neil Irons, a senior partner with management consulting firm
Hewitt, sees four distinct developments that are impacting on the way people
are rewarded in the European company of today. In essence, he says we are
moving from:

 

– Historical performance comparison to peer company
comparisons

 

– Focus only on the number to focus on an holistic view of
executive performance

 

– Cohesive pay structures to flexibility to recruit talent

 

– Compensation that equals cash and pension to encouraging
employee share ownership.

 

Much of this, he adds, is "linked to stock performance;
giving employees at all levels equity in the company is becoming the rule
rather than the exception".

 

But there are those who seriously doubt that this trend can
really be effective. They say that not only can performance-based programmes
encourage the wrong and narrowly focused behaviour, but that people are waking
up to find that stock options do not always provide greater levels of reward.

 

Predicts Russell Reynolds’ Janta, "I believe that 2001
will usher in great changes in pay and compensation practices. Last year,"
he recalls, "there was a great technological bubble, people were seduced
and even blinded by it. Many people left older, more established companies to
go and work with new Internet start-ups. Often, they accepted much lower salaries
in exchange for stock options." But following the collapse of so many
dot-com companies, he says that the "dream is much more under control, now
that the bubble has burst," although he admits that IT will continue to be
in demand.

 

He also notes that the days of overinflated pay packages for
these professionals are a thing of the past. "There will be tighter
control on the market," he says and it will "revert to more normal
levels." And the same will follow for those in other functions who are
currently earning record numbers of mega-euros, dollars and kronas.

 

But there is little doubt that a precedent has been set.
When a skill becomes "hot" and demand outstrips supply, those with
that skill will be asking more and more for their services. The question is:
who will be next? Head-hunters across Europe agree that engineers are the whizz
kids of the new economy.

 

Fifteen to 20 years ago, engineers were scrambling to find
work and becoming an engineer was the equivalent of career suicide.
Consequently, enrolment on engineering courses slumped. But today, companies
are even seeking out engineers in their last year of college and signing them
up. In some fields, graduate engineers are getting up to US$100,000 for their
first job, around double the figure of five years ago.

 

Stuck in a Russian rut

 

As in many other European countries, the talent
merry-go-round in Russia has got out of hand. Many of the executives sent there
were soon lured away by rival companies for more money. Compensation levels
simply kept on spiralling. One senior manager went from an initial package of
US$150,000 to US$300,000 and then to US$600,000 in just a couple of years. The
money is good, but there is a serious downside. Once tired of life in Russia,
executives sporting US$500,000-a-year lifestyles cannot get rehired in the
West. They are simply too expensive and their only real differential and
business talent is that they know how to operate in Russia.

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