Tag: Compensation Policy

Egypt Inflation

Egypt’s Surging Inflation: What is Happening and How Employers Can Prepare

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group reports on the current state of labor markets that are making headlines around the world, bringing you up to date on the news.

Egypt, Africa’s third-largest economy, has been battling inflation for almost a year. Supply chain issues and tight financial conditions have also made Egypt vulnerable to external shocks.

Egypt’s inflation rose to 26.5% in January 2023, up from 21.9% in the previous month and 8% in January 2022. Steve Hanke, an economist at Johns Hopkins University, estimates the actual inflation rate to be 101%.

A currency crunch

The crisis began in February 2022 with Russia’s invasion of Ukraine. The conflict has severely affected Egypt’s economy. The country saw food and energy prices soar. Its tourism industry, which relies on Russian and Ukrainian visitors, further declined. Foreign investors also pulled out over US$20 billion in investments. The Egyptian government responded to the flight of capital by restricting imports. Inflation, which was at 8% the month before, entered the double digits zone at 10%.

With dwindling foreign currency reserves and teetering on the brink of an economic collapse, Egyptian authorities turned to the International Monetary Fund (IMF) for aid in March 2022.

A new IMF loan

After several months of meetings and negotiations, Egypt and the IMF reached a staff-level agreement in October 2022. (The loan agreement was approved by the IMF’s Executive Board in December 2022 but only publicly published in January 2023.) The IMF would provide a support package totaling US$ 3 billion in exchange for implementing several economic reforms, including:

  • Liberalizing the exchange rate,
  • Raising interest rates by 2%, and
  • Scaling back the economic role of the state and military.

The support package would be gradually given to Egypt within four years, subject to periodic reviews. The IMF loan is also expected to catalyze another $14 billion in funding from international and regional partners.

The shift to a flexible exchange rate

One of the IMF’s conditions for its latest loan was to liberalize the exchange rate. With a permanent shift to a flexible exchange rate, the Egyptian pound’s value would be determined by forces of supply and demand rather than set by the central bank.

To comply with the IMF’s terms, the Central Bank of Egypt (CBE) announced in October 2022 the shift to a flexible exchange rate. The CBE has since been devaluing the Egyptian pound in phases. Since the end of January 2023, it has been trading at above EGP 30. The Egyptian pound lost over half of its value in less than a year.

As a result, the depreciating pound has been fueling inflation and adding to the woes of Egypt’s 106-million population.

An economic crisis

Egypt’s fiscal measures have strained its citizens, especially the poor and middle class.

Egyptians are feeling the pinch. Many imported products are unavailable, and food staples have doubled in price. Tens of millions of people cannot afford basic staples, limiting their spending. Families have been cutting back on meat, medicine, and clothing.

Citizens are complaining about their income shrinking. More middle-class Egyptians have turned to charities for support.

In an opinion piece for Middle East Eye, former investment minister Yehia Hamed cites that nearly 70% of Egyptians believe the government is “doing too little to meet people’s need for an acceptable standard of living.”

How is the government responding

According to the World Bank, the government announced various measures to help alleviate the impact of higher prices on the vulnerable. These measures include revising the minimum wage, delaying adjustments to electricity prices, and extending existing food subsidies and cash transfers. The government has also opened outlets where food is sold at lower prices.

But conditions are still problematic. Poverty is elevated in Egypt: roughly 1 in 3 Egyptians live below the poverty line, according to official figures as of 2020.

What analysts say

The immediate outlook for the Egyptian pound is more challenging, says S&P Global. Experts predict that, over the next 3 to 12 months, the Egyptian pound will trade at 32 to 35 pounds against the dollar.

Analysts also predict that inflation will continue to rise in the short term. The World Bank (WB) forecasts Egypt’s inflation to remain double-digit until the fiscal year ends in June 2023. WB also notes that economic activity and real incomes are expected to be adversely impacted.

What our Market Monitor indicates

Egypt has been on our Market Monitor report since its first publication in mid-June 2022. From mid-July to September, the North African country was at Level Two for two months. Level Two reflects dynamic market conditions where there has been a movement of over 20% in the exchange rate in the past year.

In October, Egypt was dropped from our list of volatile labor markets as the movement in the local exchange rate fell below 10%. Nonetheless, we continued to examine the Egyptian Pound’s exchange rate movement against the US Dollar. Egypt reentered the list in November and remained at Level Two until early January 2023.

In mid-January 2023, Egypt’s level of volatility jumped from Level Two to Level Four. As of the time of writing, Egypt’s exchange rate movement for the past six months is 59.2%, showing sudden and rapidly evolving conditions.

How Birches Group can help

Employers in Egypt should keep a close eye on the local situation, as rapid economic events can drastically impact business continuity.

As inflation rises, organizations must respond proactively to the emerging crisis. In the 15 February edition of our Market Monitor report, we highlight Egypt as a case study of what organizations can do in a turbulent market. Join our mailing list today to learn about our recommendations for special measures in Egypt and other volatile labor markets.

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Iran’s Countrywide Protests and What They Mean for Employers

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor markets that are making headlines worldwide and wants to share news and updates on the conditions in these markets.

“Blood that is spilled unfairly will boil until the end of time,” goes an old Persian saying. For nine weeks, the streets of Iran have been shaken by protests calling for the overthrow of the religious theocracy that has ruled for over 40 years. Iran’s countrywide protests began on September 16, when 22-year-old Mahsa Amini died in police custody. Amini was detained in Tehran for allegedly not observing the country’s dress code for women and collapsed into a coma at a police station. A photo and video of Amini in the hospital were shared online and quickly went viral.

Iran has a long history of demonstrations and unrest. But the events since mid-September are different. They are led by women and young girls with no organizing force or leadership. They are spontaneous, persistent, widespread, and supported by people from different layers of society. Students and older Iranians, merchants and labor unions, and the middle and working classes have taken to university campuses and onto the streets of over 100 villages, towns, and cities across the country. Iranian expatriates have also rallied in support in Berlin, Washington DC, and Los Angeles.

And despite violent clashes with security forces, more than 14,000 arrests, and mobile and internet restrictions, dissent rages on with remarkable defiance.

The protests and the economy

The demonstrations across Iran now go far beyond Amini’s death and women’s rights. They have moved from demands for reform to demands for systemic changes, an expert told NBC News.

The protests have quickly swelled in response to the Islamic republic’s economic stagnation. The BBC says that, on average, Iranian families are “quite a lot poorer than they were 15 years ago.” Iran’s middle class has shrunk dramatically since 2018, with a third of its population falling into poverty. 23% of the youth population is unemployed, according to the Financial Times.

Additionally, Iran is facing a record inflation of 42.9%. Its currency, the Rial, has sunk to all-time lows. Since August, the Iran Rial has lost more than 20% of its value against the United States (US) dollar.

Businesses, shop owners, and bazaar traders in several cities closed their stores and went on strike, joining the protests in solidarity, Bloomberg and Iran Wire report. According to a primer from the United States Institute of Peace, factory workers in the energy and petrochemical industries also went on strike.

The Iran Chamber of Commerce warns that every hour of internet restrictions due to the protests costs US$1.5 million in damages to the Iranian economy. Research from the Tehran Computer Trade Union Organization states that 47% of internet businesses have lost more than 50% of their income. If the internet disruptions continue, 73% of businesses with less than 50 employees will lose over US$1,100 daily.

The government is considering a 20% pay raise for state workers. Still, the Rial’s sharp fall has eaten away at any benefit for workers, says London-based Iranian news website Iran International.

How we can help

Policies and procedures for keeping pay programs functioning in highly volatile markets such as Iran are critical. Organizations must develop a Special Measures Policy to determine the triggers and equivalent measures to support staff and ensure business continuity during political unrest. In addition, decide how your organization plans to implement the next steps for your staff. Employees need to know they can rely on their employer to help them during times of uncertainty.

We at Birches Group have extensive expertise in developing Special Measures Policies for organizations across different markets and sectors. Speak with our consultants today to find out how we can create one for you.

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BUILDING YOUR SCALE: IMPLENTING YOUR NEW SCALE

Written by Kai Donesa on . Posted in Resources.

Now that your salary scale and benefits package is ready, the final step is implementing your new scale and communicating the changes to your teams. Equipped with your analysis and overall cost implications against your budget, you will now need to secure the necessary approval from management.

When seeking approval, begin by presenting any existing issues with the current salary scale and the challenges your salaries are facing against the external market. Take management through your process when you built your new salary scale, making sure to highlight:

  • The chosen salary survey you used as a basis
  • Your chosen set of target comparators that met your criteria
  • The difference of your existing salaries against your target market position
  • The steps you have taken to address the current issues and build future capacity
  • The overall cost

Finally, you also need to present to management your implementation plan and the timeframe that it will require, so they can assess the entire impact of the new scale.

Once approval has been granted, the next step is communicating the changes to staff. This is a crucial process because you will need to equip your managers with the right information for them to relay later to each of their teams or units. When discussing the changes with your staff, keep these in mind:

  • Discuss the work that went into building the salary scale and be clear on the company policy that supports the steps you have taken. This will ensure that your managers will be ready to answer any questions or reactions their staff may have.
  • Be clear about your implementation plan, what staff can expect, and when. This way, you can manage everyone’s expectations and hopefully have them feel excited about the changes that are soon to take place.

With the steps we have shared on implementing your new scale, we hope this has provided you with the insight you need to get started in designing your own pay structure. Birches Group is always ready to help organizations create a salary scale that will work for them. Contact us to learn more.

Want to know if your existing compensation practices have the elements of a good compensation program or if there are areas that could use some improvement? Take our quick Compensation Program Assessment Quiz to know your score!

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

Follow us on our LinkedIn for more content on pay management and HR solutions.

BUILDING YOUR SALARY SCALE: ADJUSTING YOUR SCALE

Written by Kai Donesa on . Posted in Resources.

Now that you’ve created your salary scale and examined your benefits package; the next step is adjusting your scale. Refining your scale will be a trial and error process until you get as close to your target as possible. There are several factors that will affect the impact of your scale, both externally and internally, so it is crucial to keep these in mind every step of the way.

When we think about external factors that affect the impact of your salary scale, factors such as average market movement, your budget, the number of incumbents per grade level in your organization, as well as the overall cost all need to be considered. When you start allocating adjustments for each grade level in your scale, using the average market movement and your budget, you can start adjusting your scale’s minimums and maximums, while keeping the number of incumbents per grade level in mind. Once you have gotten as close to your target market position as possible, check if your adjustments are all within budget. If not, keep adjusting and tweak where necessary.

While adjusting your pay ranges, you also want to keep in mind the issues that your existing salary scale has and how your changes will best address them. Are your hiring rates competitive at the job levels where you need more capacity? Do any of your existing staff fall below your current hiring rates? Similarly, do you have staff that are currently paid beyond the maximum salaries of their grade level? Do you make use of your salary ranges per grade level or do you find many of your staff clustered in certain points in each grade? Remember, adjusting your salary scale is not simply about updating salaries following market movement. It is also about making corrections where you know there are inefficiencies in the current pay structure.

Just as important as reaching your target market position and being competitive externally, is your team’s internal cohesion. Once you have reached your desired salary scale results, give it another look to see if everything makes sense. Pay close attention to your internal parameters, such as the progression from one grade level to the next, and see if the overlaps are reasonable. Examine your spans – the difference between your minimum and maximum salaries – as well and see if they align with the nature of each job level within your organization. Also, you will need to see how each of the adjustments you made will affect staff at every grade level. Checking for fair internal cohesion will ensure strong staff engagement to which they can tailor their development and build their careers over time.

Designing and refining salary scales is both a technical exercise and a sensitive one. As managers in human resources, we must realize that without an efficient salary structure in place, along with a solid job structure, achieving a strong engaged workforce will always be a challenge. And while we know that the salaries we set will not always make everyone happy – someone will always want higher pay, someone will challenge your chosen set of target comparators, and perhaps ask why they cannot have more benefits – what is important is making sure that the policies that went behind designing the salary scale is clear and communicated to staff. To learn more about how Birches Group can help you design a salary scale fit for your organization’s needs, contact us today.

Want to know if your existing compensation practices have the elements of a good compensation program or if there are areas that could use some improvement? Take our quick Compensation Program Assessment Quiz to know your score!

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

Follow us on our LinkedIn for more content on pay management and HR solutions.

BUILDING YOUR SALARY SCALE: ANALYZING BENEFITS

Written by Kai Donesa on . Posted in Resources.

Analyzing your benefits package is a step that can’t be missed. In many labor markets around the world, benefits are an essential part of total compensation. Particularly in developing markets, some benefits are mandatory, others may be cultural, and some given to address certain realities on the ground. Whether you are a local organization or an international one, it is essential to have a policy that aligns with your market’s local conditions.

Additionally, benefits are also an important part of a company’s Employment Value Proposition (EVP). Determining which benefits your company provides, the frequency it is provided, and grade levels eligible to receive them can be used a strategy to attract and retain talent, showcase company culture, and be seen as an employer of choice.

Once you have aligned your total compensation against the market, designing your benefits package will begin by ‘backing out’ your benefits to arrive at just base salary. From there, you can assess which benefits to keep and maintain, and which ones to change.

When examining your benefits package, here are three things we suggest you keep in mind:

  • What benefits are considered mandatory in your market? – different countries have different mandatory benefits. Some countries have mandatory bonuses on top of base salary, others may have mandatory housing or transportation allowances, while others have government-mandated health and pension contributions. As an employer, you will need to follow what is prescribed by law, especially if you are an international organization.
  • What benefits are common practice in your market? – knowing which benefits are commonly provided by most employers in your market can also help when designing your benefits package. Of course, it is not necessary to follow every single benefit provided. But those that are given by majority of the companies could be considered and examined further against your budget and policy.
  • What benefits are considered tax-advantageous to your staff? – depending on your market, some benefits can be considered taxable and others non-taxable. When thinking about benefits, employers can provide contributions or cash benefits that do not trigger a tax deduction from staff or maximize its non-taxable portion as much as possible.

Further, when designing your benefits package, employers also need to think about the grade levels that each benefit will apply to. Unless it is mandatory, not all benefits need to be provided to all grade levels and in the same manner. There are some benefits that are given to certain grade levels due to the nature of their jobs. Incentive-based benefits and representational benefits are more common for roles in managerial levels, while cash allowances and transportation benefits are more commonly provided to general and process-based grade levels.

Benefits can also be used by employers to encourage desirable behaviors from their staff. A classic example is using performance bonuses to reward achievement and a job well done at the end of the performance year. Another is the use of loans, seniority allowances, or even company-sponsored savings plans to promote staff retention. Sometimes, companies also hold activities that foster workplace culture among their employees, from team lunches, happy hour, to corporate social responsibility events. In our many years of conducting salary surveys and collecting data from employers in over 150 countries, we have certainly seen a lot of creativity from employers when using benefits that highlight their unique company culture.

When analyzing your benefits, we must remember that, in the end, benefits are cheaper than salaries. Base salary, bonuses, and allowances all come from the same internal budget, so every dollar that goes into providing more benefits will take away from the budget for other components of your staff’s employment package, such as pension and salary increases.

Birches Group can help your organization design a benefits package that aligns with your policy while meeting local conditions. Contact us to get started.

Want to know if your existing compensation practices have the elements of a good compensation program or if there are areas that could use some improvement? Take our quick Compensation Program Assessment Quiz to know your score!

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

Follow us on our LinkedIn for more content on pay management and HR solutions.

Pay Management using Skills-based Approach

BUILDING YOUR SALARY SCALE: ESTABLISHING YOUR COMPENSATION POLICY

Written by Kai Donesa on . Posted in Resources.

To effectively manage salaries, organizations need a compensation policy that will guide them during the scale design exercise. A compensation policy outlines the organization’s approach to selecting and refining their relevant comparator sample, determining their target market position, identifying which benefits to assess and include in their pay package, as well as determining the frequency of salary scale reviews. There is a misconception that salary survey data alone, can give organizations what they need to manage compensation. But in Birches Group, we believe that having a strong compensation policy, coupled with good survey data, will steer organizations in the right direction toward the answers that they need. Without a compensation policy, it will be difficult for organizations to know where to start, or what to do with the survey data that they have.

When establishing your compensation policy, a few things need to be considered, beginning with identifying one or more surveys of high quality as your source of market data. Be sure you fully understand each survey’s methodology and approach so you can easily aggregate the results in your market comparison.

Once you have your salary survey data, the next step to designing your salary scale is to establish a refined comparator sample comprised of employers important or comparable to you. While having a robust salary survey may sound ideal in providing an extensive range of data, not all survey participants will be relevant. Your compensation policy should clearly identify the number of comparator organizations to be selected and the criteria they must meet to be included in your market comparison.

Building a Compensation Policy, Examples of Criteria to Consider:

  • Talent competitors (those you recruit talent from and lose talent to)
  • Industry peers
  • Organizations of the same size or in the same geographic location
  • Other leaders in your market outside of your sector

Choosing the right target comparators is key to be able to narrow down the bigger survey data to a group of more significant employers that share qualities parallel with your organization. Additionally, organizations need to keep in mind that participants in a survey can change each year, with new ones added and old ones dropped. The key is having consistent criteria that ensure, even with a changing survey sample, your selected comparator group is consistent and still sufficient to meet your requirements.

Once you have selected your target comparators or target market, you will need to identify your target market percentile or target market position. Selecting your target percentile would depend on how competitive you want to be against your chosen market, while also taking your organization’s budget into consideration. Your organization’s compensation policy should define the ideal market position it requires to reach the talent it needs to recruit and retain. Further, the compensation policy should also identify if all levels in the organization will have the same market position or will be tailored to each level.

If your organization is facing challenges to recruit or retain talent, you should reassess your target market position and adjust it to ensure your organization is positioned competitively against your chosen market. Sometimes recruitment and retention issues are limited to specific grades or bands. While some organizations may use the same target market position for all grade levels, labor markets are not uniform and do not move in a linear fashion. Certain grade levels can move faster due to high demand, hot skills, or other considerations. Organizations can choose a more competitive target market position for job levels where these talent challenges exist.

In our article, It Starts with Jobs, we explained that there are four labor markets, not just one. In Birches Group’s Community™ approach, these are called the four job clusters. Different grade levels in the labor market are grouped into these four job clusters and movement from cluster to cluster can be very distinct, where jobs at higher grade levels often move much quicker than jobs at the lower levels. It is important for employers, when comparing their salaries to the external market, to recognize this when deciding which grade levels to adjust as it allows for a more refined approach that is targeted to the organization’s needs, rather than simply applying an across-the-board adjustment.

Now that you have identified your target market comparators and target market position, your compensation policy should also outline the benefits that will be included in your compensation package. If you are looking to introduce benefits into your compensation package or change your existing benefits package, you’ll need to consider the following:

Some Things to Consider if You’re Looking to Introduce Benefits into Your Compensation Package:

  • Locally Mandated Benefits – The first place to start is by checking if there are any benefits, whether cash or in-kind, that are prescribed by law. Different countries have different mandatory benefits; some may have mandatory bonuses or allowances, while others may have mandatory contributions toward pension or medical coverage.
  • Market Practice – When assessing your benefits package, it also helps to know the common practice in the local market. While some practices may not be mandatory, if they are provided by most employers in the market, it may be a competitive requirement to follow the market. Your survey sources should be able to provide detailed information on all types of benefits.
  • Benefits that Promote Desirable Behaviors – Some employers use benefits to promote desirable behavior among their staff. For example, a performance bonus to reward achievement and encourage good performance, and seniority bonus or subsidized loans to promote retention.

Finally, your compensation policy should also identify how frequently your salaries will be reviewed. In Birches Group, we recommend that organizations review their salaries and benefits every year to ensure that their salary scale is adaptable to changing operational realities in terms of budget and resources, and evolving team structures, as well as ensure that their scales are aligned to their target market position and is able to adapt to changing market trends.  

It is important for organizations to have well-articulated pay policies in place that will not only guide how they develop their salary structure and manage compensation, but also provide the framework for forming strategies around recruitment and retention of their staff, proving this to be a valuable HR tool. Birches Group is ready to assist in establishing the appropriate compensation policy that can address your organization’s needs. Contact us to learn more.

Want to know if your existing compensation practices have the elements of a good compensation program or if there are areas that could use some improvement? Take our quick Compensation Program Assessment Quiz to know your score!

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

Follow us on our LinkedIn for more content on pay management and HR solutions.