While there are many unique differences between the US and Europe, when it comes to C-suite roles, by far the biggest contrast is the expectation of compensation. Research shows that the most paid executives in Europe make four times less than similar executives in the United States.
“It’s time to address the elephant in the room,” says Myriam Le Cannellier, the Executive Director of DSML Executive Search (an Alexander Hughes Company). “Because executive candidates in the United States are unwilling to accept below-average compensation.”
How Big is The Compensation Gap Between Executives in the US and European Countries?
Historically, yearly compensation for US CEOs has ranged between 1.4 to 5.5 times higher than the compensation of European CEOs. Today, according to Salary Expert, executives in many European countries are compensated two times less than their American counterparts.
Understanding the reasons behind this difference in compensation can have a positive impact on executive search decisions. It can also assist with finding optimal candidates for long-term tenure and success.
“Our European clients are often amazed at the salary levels they consider to be very high when compared directly to Europe,” Myriam says. “But just as the buyer of a house or an apartment must adjust their search criteria according to their budget, we must apply the same approach to recruiting.”
Why is There a Compensation Gap for European Companies Hiring Executives for Subsidiaries in the US?
Conversion rates and current events are not the only defining elements of C-Suite compensation.
Employers must consider factors that are inside and outside their control, including economic differences, compensation composition, cost of living, and market size.
Economic Differences
Since 1973, CEO pay in the United States has risen 1,480%. This is primarily due to economic factors such as:
- Yearly inflation. A $1 bill in 1973 would be worth $6.59 USD in 2022.
2020 lockdowns. CEO compensation jumped more than 30% between 2019 and 2021. - Business size differences. While the largest US businesses command a market cap of $3 trillion, the largest UK business has a market cap of under $250 billion.
- Market size. The eurozone’s GDP topped $15 trillion in 2023, while the US GDP nearly doubled to $26.9 trillion.
- Cost of living. According to studies, it is more expensive to live in the cheapest US state than it is in 26 European countries.
Compensation Composition
In the United States, most C-Suite salary packages include vested stock awards and exercised stock options, which account for more than 80% of their average compensation. This is not always the case for European C-Suite packages, where Executives are invited to invest in the company at a preferred price but still need to buy the stocks.
Another major difference is health insurance, which some European companies may not need to provide. Many US candidates will not consider full-time roles that do not offer health insurance or HSA plans as an option.
Role Expectations
The daily responsibilities of an executive may be interpreted differently between the US and Europe.
Travel, for example, invites misunderstanding, particularly due to the size difference between the US and Europe. “Few French companies would have a single sales executive covering the whole of France,” Myriam says. “However, the USA occupies an area approximately 17 times the size of France, and we routinely work with clients in search of sales executives that will cover half of the US, if not the entire country.”
The US is a country of experts, and finding truly generalist leaders can be difficult. This leads to higher salaries for those in demand, complicating the recruitment process for European companies expanding to the United States.
Seniority
Seniority, age, and experience may also have a significant impact. For example, executives with 10 to 20 years of experience are often in high demand. Knowing this, these professionals will maximize their revenues by choosing a company that offers more when they need it the most.
“The more senior executives with 30 years of experience are willing to accept a slightly lower compensation package than executives with 10 to 15 years of experience,” Myriam says. “This is because they have likely already paid for their house and their children’s education, which are both very pricey expenses in the United States.”
How to Resolve the Compensation Gap for European Subsidiaries Hiring Executives in the US
It is not possible to completely resolve the compensation differences between the US and Europe. However, Myriam advises taking future-focused strategies to navigate the hiring process and procure the best possible talent.
1. Reconsider Budget
“It might be necessary to reconsider the business plan and budget for a higher package to address the reality of the market,” Myriam says. “There is a cost/benefit analysis to be made as an unfilled key position may generate a loss of revenue.”
2. Readjust Requirements
“If the budget is truly limited, it becomes necessary to review the role expectations, the recruiting profile, and some of the requirements,” Myriam says. “A company might need to compromise and focus on what is absolutely essential”
3. Readjust Compensation Composition
“It’s important to make sure your job offer package is both attractive and well-rounded,” Myriam says. “Offers should include competitive salaries, bonuses or incentives, as well as other perks such as vacation time and a 401(k) account with good matching from the employer.”
4. Delay Project
“A good alternative is to only set up an operation in the US when a certain level of investment is possible, even if it means waiting to be able to deploy a well-rounded team,” Myriam says.
Searching for the Best Candidate at the Best Compensation
Financial compensation is often a sensitive subject in executive recruitment, which is why some professional search firms balk at setting these expectations with clients. However, it is both essential and necessary to understand these cross-cultural differences and develop effective strategies to procure effective talent.
DSML Executive Search, an Alexander Hughes company, assists European companies with executive recruitment in the United States, including the prospecting of C-Suite executives. Serving eight unique industries with multiple decades of combined experience, we support businesses of any size in acquiring the highest-quality list of candidates. You are welcome to contact the professionals at DSML Executive Search at +1 312 268 6166 today.