Burgers and Bonuses: What Big Mac Prices Reveal About Global Pay Trends

September 9th, 2024

By Frank Glassner, CEO of Veritas Executive Compensation Consultants

It's no secret that the price of a Big Mac can tell you more about global economics than many sleep-inducing seminars on fiscal policy. Thanks to The Economist's Big Mac Index - a playful approach to explaining currency valuations through the lens of a universally recognizable sandwich - we have a digestible (pun intended) way to gauge purchasing power across the globe.

But let’s chew on how this might relate to global compensation trends, especially for those at the executive level.

Unwrapping the Executive Compensation Connection

As an executive compensation consultant, I see a parallel here with how global pay packages are structured. Just as a Big Mac's cost varies by location due to factors like taxes and production costs, so does executive pay differ across borders, influenced by local market conditions, cost of living, and regulatory environments.

In countries with "overvalued" currencies like Switzerland, we often find not only more expensive burgers but also higher nominal executive compensations. This reflects both the higher cost of living and the premium talent commands in these markets. It’s an economic environment where a CFO might afford more than a few fancy Swiss Big Macs out of pocket change.

The Big Mac Index: A Snack-Sized Economics Lesson

The Big Mac Index simplifies currency theory by comparing the price of McDonald's Big Macs in various countries to the price in the U.S., which serves as a benchmark. For instance, as of January 2024, Switzerland tops the charts with the most expensive Big Mac at $8.17—suggesting that the Swiss franc is significantly overvalued against the dollar. On the other end, several East Asian currencies appear undervalued, hinting at deeper economic stories.

Unwrapping the Executive Compensation Connection

In countries with "overvalued" currencies like Switzerland, we often find not only more expensive burgers but also higher nominal executive compensations. This reflects both the higher cost of living and the premium talent commands in these markets. It’s an economic environment where a CFO might afford more than a few fancy Swiss Big Macs out of pocket change.

Turning our gaze towards the U.S. and Asia, the narrative spices up. Despite the robust economic output, the undervaluation of currencies in Taiwan, Japan, and China as per the Big Mac Index mirrors a broader trend in executive pay. These regions tend to report lower average executive compensations compared to the U.S., partly due to different corporate governance standards and cultural nuances in pay transparency and structure.

For example, while U.S. firms often use substantial equity-based compensation to align executives' interests with those of shareholders, Asian companies may lean towards cash-based bonuses and lower visibility in total compensation packages. This might make a U.S. executive's pay packet seem as inflated as a well-dressed Big Mac compared to its Asian counterpart.

Digesting the Data: A Call for Nuanced Understanding

While the Big Mac Index serves up a quick taste of global economic flavors, it's important to digest these numbers with a grain of salt—or perhaps, a squirt of ketchup. Similarly, when evaluating executive pay scales globally, we must consider a host of factors beyond mere currency valuations, such as performance metrics, industry norms, and local economic conditions.

In conclusion, just as one might ponder the disparities in Big Mac prices while munching on the iconic burger, industry leaders should contemplate the variables affecting executive compensation worldwide. It’s not just about paying top dollar or saving yen; it's about ensuring pay structures that truly compensate for performance and market conditions.

So, the next time you bite into that Big Mac, think about what it might mean not just for your waistline but for your understanding of global economic and compensation trends (and don’t forget to think about your favorite executive pay consultant Frank Glassner as well…). After all, economics doesn't have to be dry and tasteless—it can be as engaging and layered as a well-made burger.

Veritas Executive Compensation Consultants, ("Veritas") is a truly independent executive compensation consulting firm.

We are independently owned, and have no entangling relationships that may create potential conflict of interest scenarios, or may attract the unwanted scrutiny of regulators, shareholders, the media, or create public outcry. Veritas goes above and beyond to provide unbiased executive compensation counsel. Since we are independently owned, we do our job with utmost objectivity - without any entangling business relationships.

Following stringent best practice guidelines, Veritas works directly with boards and compensation committees, while maintaining outstanding levels of appropriate communication with senior management. Veritas promises no compromises in presenting the innovative solutions at your command in the complicated arena of executive compensation.

We deliver the advice that you need to hear, with unprecedented levels of responsive client service and attention.

Visit us online at www.veritasecc.com, or contact our CEO Frank Glassner on his personal website at www.frankglassner.com, via phone at (415) 618-6060, or via email at fglassner@veritasecc.com. He'll gladly answer any questions you might have.

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