Russian executives make more than their European counterparts

 Total payments to Russian senior executives in 2010 were 71 percent higher than payments to similar employees in Europe, according to findings from international consulting firm Hay Group. Fixed salaries were 40 percent higher, and bonuses were 60 percent higher.

Fixed salaries in European countries hardly changed last year. Salaries for the highest earners in Europe – executives in Germany – grew only 4.2 percent, and this increase could be attributed to both relatively good growth in the German economy as well as a lack of legislative restrictions on the size of bonuses. By comparison, in France during the same period, there was no growth in fixed salaries; in 2008, major French companies signed a Code of Business Conduct, which stipulates that pay raises can only happen once every three years. In Italy, the increase was only 0.2 percent. In contrast, salaries for Russian executives increased by 6 percent this year, according to Hay Group.

Additionally, Russians take first place in Europe for bonuses, said Irina Chernozubova, head of compensation information for Hay Group’s Russia office. Moreover, the Russian offices that took part in the survey almost without exception paid their managers yearly bonuses, the size of which was equal to or greater than rates set forth in their company budgets. In other words, almost unilaterally, Russian executives managed to meet or exceed plans for the year and received extra compensation for doing so.

On average in Europe, only 60 percent of managers received bonuses larger than stipulated in plans, but the range was vast: a quarter of survey participants received bonuses that were 42 percent higher than budgeted, while another quarter received bonuses that were 91 percent less than budgeted.

Hay Group explained the higher incomes by saying that shareholders of Russian companies are willing to pay for top executives, as long as they make companies competitive not only on domestic, but also on international markets.

Only major companies participated in the study on the Russian end, said Chernozubova, so there isn’t enough data to argue that the incomes of top executives at average Russian companies are higher than those in Europe.

In Russia, there are many intelligent, well-educated people, but it executives are in higher demand, said Artem Avdeyev, managing partner of the Russian office of Egon Zehnder. Plus, in contrast to Europe, Russia does not yet have restrictions on bonuses. Even during the economic crisis, many Russian companies compensated for the lack of bonuses with pay raises, he said.

Olga Shcherbakova, a partner at Ward Howell, agreed that Russian executives cost significantly more than their European colleagues, but thought this could be because Russians just have more complex work: They are faced with a far greater number of nondeterministic problems than Europeans. Russia also has a severe shortage of personnel in senior management positions. 

And there is little chance Russia’s acute shortage of top executives will improve any time soon, said Igor Shekhterman, managing partner of RosExpert. Western companies have invested years in developing human capital, while Russian companies are just beginning to consider it.

Russian companies also haven’t yet learned to use the tools of long-term compensation, said Sergei Lvov, general director of Axes Management. In the U.S., two-thirds of the total compensation for senior management is accounted for by shares, stock options, and deferred bonuses. In Europe, that number is about half; but in Russia it’s a small portion, according to Lvov. In other words, while the income of senior management in developed countries consists of three elements, Russia often only has two (salary and bonus). If you factor in long-term compensation, Russia’s top managers may not be especially overpaid, noted Lvov.