Intercomp salary review: trends in the first half of 2017

By Ekaterina Ovchinnik, HR Director Russia and CIS

Екатерина Овчинник, директор по персоналу Интеркомп
Ekaterina Ovchinnik
HR Director Russia and CIS

It is difficult to overestimate how payroll affects the total amount of costs incurred by companies and their final financial result as a whole. First, the share of payroll in the overall cost structure is generally fairly high. Second, it is often used as a basis for formation of overhead costs, total amount of costs, and in the end, the prices of manufactured products or services rendered.

There are both internal and external factors affecting payroll amount. The number of staff calculated individually depending on the industry, on the chosen model for production or provision of services, on the volume of manufactured products, on the company’s development plans is an internal factor. Salary amounts, on the other hand, are an external factor because they are directly related to the labor market. Any attempts to resolve the issue locally, without considering the external environment, are doomed either to a perpetual search of personnel and inability to close vacancies or to overpayment, i.e. cash over-expenditure, and consequently, unjustified reduction in financial results.

It is therefore extremely important to have up-to-date, accurate and structured data on the external environment, especially the salary amounts offered on the labor market.

Our reviews are an excellent tool for determining the optimal salary amounts as they provide an accurate assessment of the market situation in a particular moment in time. Our reviews are unique for the following reasons:

  • Data and technology – our data is collected based on the salaries actually accrued by the companies we serve as our clients, using specially designed software, while most providers use questionnaires, and this affects result accuracy.
  • Sample structure – a cross-section of various businesses – large, medium and small – is included in our sample. Most providers work only with large international and state corporations so they end up with higher salary levels.
  • Review periodicity – we issue general reviews quarterly as opposed to annually as is usually favored on the market (we can also issue individual reviews for any period at any time).

Below we address the following questions: What is the scope of the data we have analyzed to prepare our review? How many and what kind of companies have been surveyed?

Characteristics of the companies surveyed for our review

1) Industries

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2) Regions

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We have surveyed over 300 companies, representing:

  • 9 regions of the Russian Federation
  • Over 15 industries
  • Over 30 data units
  • Over 300 job positions
  • Over 30,000 staff members in employment

What do the figures of our review of the first half of 2017 show? What are the main trends on the labor market? What has changed compared to 2016? These questions are reviewed in more detail below.

Trends in the first half of 2017

Our data shows several main trends on the labor market by the end of the first half of 2017, clearly distinct from the crisis period of 2015-2016:

  1. If in 2016 we observed a decrease in staff number, a small increase could be observed in the first half of 2017. So, if we compare the first half of 2017 with the second half of 2016, we note a 5.2% increase in staff number on average. However, in most cases, the increase in staff number goes hand in hand with a decrease in average salary/income level.
  2. Employers continue optimizing payroll costs. However, if in 2015-2016 this was achieved mainly by decreasing staff number, in 2017 the same is achieved by reviewing the salary structure, i.e. by increasing the variable part of wages (quarterly and monthly bonuses) while reducing the fixed part of wages (fixed salary + allowances). It became possible to reduce fixed salaries by hiring new employees or promoting current employees to higher posts without increasing their salaries to the levels at which they were set for their predecessors.
  3. The most significant decrease in salary levels in the first half of 2017 (compared to the second half of 2016) was observed in retail trade, as well as for a number of positions in wholesale trade (sales managers, sales representatives). Moreover, if in wholesale such decrease is accompanied by a growth in staff number, in retail it comes along with a fall in the average salary level while staff number is still decreasing.
  4. The most significant increase in the average level of wages in the first half of 2017 (compared to the second half of 2016) was observed in design and major constructions, in the medical industry, among IT professionals and a number of blue-collar jobs, as well as some positions in the financial sector.

We have outlined above the general trends observed in the market overall as a result of our review of the first half of 2017. Below we provide a more detailed description of the situation broken down into the main professional fields/industries.

General review: detailed analysis of results for main professional fields

Please note that for the purposes of this analysis, we have compared the data of the second half of 2016 with that of the first half of 2017 (i.e. the previous half year with the current half year). We have indicated average values of indicators for groups/positions. We would also like to note that variable payments (quarterly and monthly bonuses) have increased for a number of industries, but payments for achievement of annual targets and annual bonuses have not been taken into account in our analysis.

Finance

An increase in the level of salaries for senior executives (financial director, deputy financial director) has been observed in this sector, mainly due to a growth in the variable part of salaries.

The structure of wages for mid-level managers, senior and junior specialists tends to be revised by increasing the variable part of salaries while at the same time reducing the fixed part of salaries.

Overall, wages in this industry have increased by 2.4% with a slight 1.3% decrease in staff number.

Accounting

A picture similar to that in the finance sector is observed for the accounting sector, i.e. a revision of wage structure by increasing the variable part of salaries while decreasing fixed salaries. Overall, wages in this industry have slightly increased by 3.4% while keeping staff number at the same level.

Administration

Overall, the salary level in this sector has declined by 7.2%, while staff number has continued to decrease by 14% altogether compared to the second half of 2016. It appears that employers still consider this sector as one of the main areas for payroll optimization.

HR

An increase in salaries for senior executives is observed and is primarily due to a growth in the variable part of salary. A decrease in salaries for middle managers and a number of senior specialists is also observed, while the salaries for all other categories remain the same or grow only slightly. Overall, wages in this industry have decreased by 6.1% while staff number has grown by 6.3%.

Health, safety and environment

A salary decrease is noted (mainly for middle managers) while keeping staff number at the same level.

Wholesale

An increase in the number of sales managers and sales representatives particularly stands out compared with the second half of 2016. Together with this growth in staff number, the salary amounts for these employees have decreased primarily as a result of a decrease in the variable part of salary (bonus).

Overall, wages in this industry have decreased by 5.5% while staff number has significantly increased. This may indicate that employers are attempting to increase sales by hiring more staff, but also that employees are finding it difficult to achieve set KPIs, and as a result the variable part of their wages is only partially or not paid at all.

Retail

A decrease in both salaries (by 10-17% overall) and staff number (by 3% overall) is observed in this sector. This is probably due to a decrease in retail turnover in the first half of 2017 compared with the second half of 2016. However, it is, in this case, necessary to take into account the seasonal factor. The table below shows data from the Federal Statistics Service on retail turnover from 2015 to 2017 (per month).

The graph above shows that, despite the general downward trend in the fourth quarter of 2015 and 2016, there were surges in retail sales due to seasonal factors (New Year and Christmas holidays). Based on this trend, it is safe to assume that the fourth quarter of 2017 could also see a seasonal surge in trade turnover by 15-20%. This, in turn, should give rise to an increase in income of retail workers who should at least achieve their set KPIs and thus receive the variable part of their wages.

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Research and development;

Overall, salaries have increased by 5.2% in this industry while keeping the same staff number.

IT

The salaries of IT support specialists, IT senior staff and software engineers continue growing. The salaries for other categories in this sector either have remained at the same level as those of the second half of 2016 or have slightly decreased. Staff number has decreased by 8.3% in this industry overall.

Design and major constructions

Salaries have increased by 13% while staff number has remained at the same level.

Geological prospecting, development and extraction of raw materials

Overall, wages in this industry have increased by 8.5% while staff number has decreased by 9.1%.

Blue-collar jobs

The greatest increase in wages is noted for electric and gas welders and CNC equipment operators. Overall, wages in this industry have increased by 4.3% while staff number has increased by 3%.

Medical industry

Overall, wages in this industry have increased by 11.7% while staff number has remained at the same level.

To sum up, salaries and staff number for all abovementioned industries are shown in the tables below.

Diagram 1: Change in wages per industry in the first half of 2017

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Diagram 2: Change in staff number per industry in the first half of 2017

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We have examined the main trends of changes in wages in the first half of 2017 both across the entire market and by industries. Given the current fast-changing macroeconomic conditions, it is extremely difficult to make any forecasts for further changes in wages, especially by industries so below we report on the changes in these macroeconomic conditions as projected by the Ministry of Economic Development as well as a number of other authoritative sources.

Main macroeconomic forecasts from the Ministry of Economic Development, IMF and a number of other authoritative sources

On August 31, 2017, the Minister of Economic Development, Maxim Oreshkin, presented a revised forecast of the socio-economic development in Russia until 2020. The following points were made in this report:

  1. The Russian Ministry of Economic Development raised the forecast for Russia’s GDP growth for 2017 from 2% to 2.1%.  Maxim Oreshkin said: “We have revised upward the forecast for GDP growth in 2017 up to 2.1%.” The forecast for 2018 has also been revised up to 2.1%, for 2019 up to 2.2%, and for 2020 up to 2.3%. The Ministry of Economic Development previously expected that Russia’s economy would grow annually by 1.5% from 2018 to 2020.
  2. The forecast of average annual price for Urals oil (Russian brand for export oil blend) in 2017 has been raised from 45.6 to 49 barrels.
  3. The forecast for growth in industrial production in 2017 has been kept at 2%.
  4. The growth in retail trade expected in 2017 has been lowered from 1.9% to 1.2% although the forecast for next year is more optimistic with an expected growth of 2.9%.
  5. The forecast for growth in investments in fixed assets in 2017 has been increased to 4.1%.
  6. The report also states that the main difference between the new and previous version of the report is the growth in investments as it is the growth in investment activity that will contribute to GDP growth.
  7. Unemployment indicators for 2017-2019 have remained at the same level (5.2% for 2017, 5% for 2018 and 4.9% for 2019).
  8. Inflation in 2017 has been revised downward from 3.8% to 3.7%.
  9. Wages. Nominal wages are expected to grow by 7.2% in 2017 (previous forecast 5.4%) and real wages by 3.1% (previous forecast 1.3%).

According to the data presented in the report, the country’s economy is showing signs of overcoming the recession of 2015 when Russia’s GDP fell by 3.7% after which in 2016 the slump rate fell to 0.2% (data from the Federal Statistics Service confirmed by the IMF). Now in 2017, growth is projected at 2.1%. At 3.7% the inflation forecast is also favorable, and consequently, real wages should grow by an average of 3.1%.

We have reviewed data from external sources to find out whether they confirm the above

In its July World Economic Outlook bulletin, the International Monetary Fund confirmed its April forecast of gradual recovery for the Russian economy in 2017.

The IMF expects Russian GDP to grow by 1.4% in 2017, whereas the Ministry of Economic Development projects a growth of 2.1%. Nevertheless, although these figures are different, they still both point to growth.

Meanwhile, experts at Bank of America Merrill Lynch have revised upward the forecast for growth in the Russian economy by the end of the year from 1.1% to 1.8% on the back of a stronger than expected second quarter of 2017, and the international rating agency Moodyʼs Investors Service forecasts a growth in Russian GDP of 1.5% in 2017.

We have thus verified and made sure that both Russian and international experts forecast growth for the Russian economy, and this growth is projected between 1.4% and 2.1%.

Various sources give the following figures for inflation:
  • IMF experts forecast an inflation rate of 4% in Russia in 2017, and this figure is very close to the 3.7% projected by the Ministry of Economic Development;
  • Bloomberg economists forecast an inflation rate of 4.6%;
  • In their report on the Russian economy, World Bank experts forecast an inflation of 4% in 2017;
  • Morgan Stanley experts forecast an inflation of 4.7% in Russia in 2017.

So, according to various forecasts, the inflation rate in Russia should be between 3.7% and 4.7% in 2017, which is quite low.

Conclusion

The Russian economy is gradually overcoming the recession that began in 2014-2015. The impact of the economic recession of the past 4 years is still felt on the labor market also: staff reduction rates have significantly decreased in the first half of 2017 compared to the second half of 2016, but overall wages have remained the same. Wages have increased only for certain categories of specialists and only in some sectors of the economy, but not for the labor market in general. Employers demand more from employees following the staff reduction that occurred in 2015 – 2016. Figures are currently significantly lower than before the crisis so it is imperative for employers to assess employee performance and contribution more accurately.

Another interesting fact is the extremely low unemployment rate nationwide (5.2%) despite the staff reductions of 2015 – 2016. This low unemployment rate, in all likelihood, stems from a complex demographic situation in the country and a decrease in the total number of economically active population.

We sincerely hope that this article will provide you with practical, useful and valuable information.

How to order the review?

At your request, we would be pleased to provide our general review for all regions and industries, as well as a salary survey prepared to meet the specific requirements of your company.

To order a review or request a demo review, please write to  marketing@intercomp.ru