The Market Monitor: A Strategic Tool for Managing Compensation in Unstable Markets
What’s the context?
In 2022, sudden economic volatility was felt worldwide. According to the International Labour Organization, the combined effects of the COVID-19 lockdowns in 2020 and 2021, rising energy and food prices, and the outbreak of the war in Ukraine in early 2022 severely disrupted global trade and triggered widespread inflation—the highest recorded over any 12-month period since early 2019.
Many countries faced simultaneous high inflation and rapid currency devaluation at an unprecedented pace. In June 2022, Birches Group identified thirteen countries experiencing varying levels of volatility. By October 2022, that number had risen to thirty-nine, spanning Africa, Asia, Europe, and Latin America.
Lebanon provides a striking example. Following the financial crisis that began in 2019, the Lebanese pound (LBP) lost much of its value. By November 2022, Birches Group classified Lebanon at Level Four volatility—characterized by currency devaluation of at least 50% or more within six months and hyperinflation reaching triple digits, which eroded purchasing power for much of the population.
Employers across sectors and regions were caught off guard, uncertain how to respond to these rapid changes. Employees, in turn, looked to their organizations for reassurance and guidance on how to continue supporting their families.
What’s the challenge?
All markets experience volatility—whether economic, environmental, or geopolitical—the question is not if, but when. When unpredictable events disrupt day-to-day operations, employers must be prepared to respond quickly and appropriately to the level of volatility. However, the economic shifts in 2022 revealed that many organizations were unprepared. Employers began looking to one another for guidance, needing sound advice on how to respond both swiftly and thoughtfully.
What’s the solution?
Birches Group’s Partners have deep expertise in managing compensation in developing markets. One critical tool they identified, often overlooked by organizations, is the Special Measures Policy.
A Special Measures Policy provides HR with clear guidance on appropriate triggers and corresponding responses based on the type and severity of volatility in the countries where they operate. To develop this policy, organizations need insights into key indicators, such as:
- Exchange rate movements (especially over six months)
- Labor market trends
- The real-world impact of currency devaluation on staff’s daily transactions
By monitoring these indicators, organizations can identify volatility triggers and implement predetermined responses, typically within 24 to 48 hours, to cushion the impact on staff.
To support this, Birches Group developed the Market Monitor, a bimonthly publication that tracks exchange rate movements globally and highlights countries experiencing varying levels of volatility—from mild (Level One) to severe (Level Six). It also includes recommended triggers and response examples organizations can consider in managing compensation during turbulent periods.
Case Study: Ethiopia’s Forced Devaluation in 2024
In July 2024, Ethiopia experienced a forced currency devaluation where the Central Bank lifted restrictions on foreign exchange trading to gain IMF support and advance a long-delayed debt restructuring. As a result, the Ethiopian birr (ETB) immediately dropped 30% against the U.S. dollar. Simultaneously, a thriving black market for currency emerged, with unofficial exchange rates exceeding the official rate by over 80%.
The rapid devaluation triggered widespread concern among employers, many of whom faced intense pressure from their employees to dollarize salaries—a move staff believed would mitigate the effects of inflation and currency loss.
Birches Group responded promptly with insights through the Market Monitor and expert guidance based on years of experience in volatile markets like Ethiopia. At the beginning of August 2024, Birches Group’s Market Monitor classified Ethiopia at Level Two volatility. However, by mid-August, it escalated to Level Four, reflecting a significant and sudden shift in market conditions.
Level Four is defined by:
- A currency devaluation of 50% or more within six months or less
- Sudden or unexpected socio-economic events
- Disjointed or unclear comparator responses in salary surveys
Despite the pressure to dollarize salaries, Birches Group advised against it. Instead, the Market Monitor recommended a moderate salary adjustment of 10–20%, tied to inflation. While this does not fully offset the impact of devaluation, it provides meaningful support to employees and signals employer responsiveness. This approach also allows organizations to adjust cautiously, avoiding overcompensation in a rapidly changing environment, and preparing for potential shifts in the next 12–24 months.
What’s the outcome?
Since June 2022, Birches Group has published the Market Monitor twice a month, keeping organizations across sectors informed about labor markets experiencing volatility. It has quickly become one of Birches Group’s most popular resources, drawing interest not only from large and small organizations but also from consultants and international publications. Through the Market Monitor, Birches Group has helped many organizations:
- Understand how to respond to specific levels of volatility
- Avoid common misconceptions and reactionary decisions (e.g., dollarization after sudden devaluation)
- Recognize why inflation alone is not a reliable volatility indicator
- Clarify salary adjustment strategies under pressure from staff
Additionally, Birches Group has hosted multiple well-attended webinars on Special Measures, providing guidance and sharing insights captured through the Market Monitor.
What’s the takeaway?
For organizations operating in developing markets, volatility is a fact of life. Having a Special Measures Policy—a companion to your Compensation Policy—is essential. It outlines triggers and pre-approved responses that HR can activate during periods of volatility, offering structure and agility in uncertain times.
Subscribing to resources like the Market Monitor equips organizations with timely data and practical guidance to navigate volatility with care and confidence.
To learn more about our Market Monitor and to access a copy, click here to subscribe.
