Tag: Compensation Surveys

Sri Lanka Economic Crisis: What You Must Know About the Current State of Affairs

Written by Bianca Valencia on . Posted in Uncategorized.

Birches Group has been monitoring the volatile economic conditions in Sri Lanka and wants to provide updates on the current labor market conditions happening in the South Asian nation. 

The past few months have not been easy for Sri Lanka, and the condition has only worsened. The country has been facing economic, political, and social crises due to the impact of the COVID-19 pandemic, rising foreign debt, and a depreciating rupee. According to a news report from BBC, the country’s inflation rate is now at 54.6% as of June 2022. Our August 1 Market Monitor shows that the exchange rate movement against the US dollar, Euro, British pound, and West African CFA franc in the past six months is at 79%. Moreover, after protests forced President Gotabaya Rajapaksa to flee to the Maldives and Singapore, Sri Lanka is in a state of emergency. 

Losing skilled talent 

These are challenging times for employers and staff in the South Asian island nation. It has been noted that there is an increasing number of skilled and educated Sri Lankans—from IT experts to hospitality and marketing professionals—who want to work overseas, where they can maximize the rupee’s devaluation and survive hyperinflation. According to Manusha Nanayakkara, the minister of labor and foreign employment, almost 168,000 Sri Lankans have registered to work abroad. Many intend to work in the Middle East, particularly in Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). An independent survey conducted in November 2021 by the country’s Institute for Health Policy reveals that 1 in 4 Sri Lankans wanted to emigrate if they had the opportunity. This ratio has increased to 1 in 3 in July 2022.  

Compensation in Sri Lanka and the Middle East 

Our July 2022 multi-sector survey indicates that compensation ranges in Middle Eastern labor markets are significantly higher than in Sri Lanka. Our survey results show that the average annual salary ranges for support staff at Birches Group Level 6 in Sri Lanka receive a minimum of US$ 5,810 and a maximum of US$9,896, while a senior professional at Birches Group Level 10 receives a minimum of US$ 14,246 and a maximum of US$ 23,517. In Kuwait, support staff at Birches Group Level 6 would be paid approximately seven times more, between U$ 48,054 and US$ 76,418, while a senior professional at Birches Group Level 10 would receive between US$ 108,420 and US$ 153,708. As the chart above indicates, the figures are even higher in the UAE, Saudi Arabia, and Qatar. 

Next steps for employers 

Birches Group’s Market Monitor categorizes labor market conditions according to levels of volatility, with Level One as the lowest (reporting standard market conditions and market movement between 0–20%) and Level Six as the highest (where the country has reported labor market collapse, departure of most comparators from the market, and absence of reliable data on currency and inflation). In our most recent Market Monitor, Sri Lanka is now at Level Four, where labor market conditions reflect sudden, unexpected social or economic events, currency devaluation of 50% or more in six months or less, and there is disjointed and unclear comparator response. When the labor market becomes volatile, such as what we are seeing in Sri Lanka, organizations should place policies and procedures to keep pay programs functioning and to maintain business continuity. 

To avoid losing skilled employees leading to brain drain, organizations in Sri Lanka must address the situation by establishing a Special Measures Policy. Through the Special Measures policy, employers can define the appropriate triggers within labor market conditions that warrant a change or update in salaries and benefits. These triggers, in turn, outline what organizations will do to help cushion the impact of hyperinflation on their people.   

How can we help 

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

References: 

  • 1 August Market Monitor Report 

Ghana’s Cost of Living Crisis: What You Need to Know

Written by Bianca Valencia on . Posted in Uncategorized.

Birches Group has been keeping an eye on economic conditions in Ghana and wants to provide updates on recent developments in the West African nation. 

One of West Africa’s more prosperous countries has been rocked by a cost-of-living crisis. Inflation in Ghana reached 29.8% in June 2022, the highest level in two decades. The Guardian reports that food prices have risen by 30.7% since last year, and energy costs have sharply climbed. Transportation costs have also gone up. 

Our August 1 Market Monitor further indicates that the Ghana cedi has seen an exchange rate movement of 34% against the US dollar, Euro, British Pound, and West African CFA Franc in the past six months. As inflation persisted and broadened, hundreds took to the streets of the capital Accra to protest the deteriorating economy. 

President Nana Akufo-Addo has stressed that the economic challenges the country is facing are the effect of the COVID-19 pandemic and the war in Ukraine. The government is seeking a support package from the International Monetary Fund (IMF), which visited Ghana in July. In a July 13 statement, the IMF said that such adverse developments “have contributed to slowing economic growth, accumulation of unpaid bills, a large exchange rate depreciation, and a surge in inflation.” 

What the labor market indicates 

The Ghanaian labor market exhibits rapidly evolving market conditions. Birches Group’s Market Monitor categorizes labor market conditions according to levels of volatility, with Level One as the lowest (reporting standard market conditions and market movement between 0–20%) and level six as the highest (where the country has reported labor market collapse, departure of most comparators from the market, and absence of reliable data on currency and inflation). In our latest Market Monitor, Ghana is classified as Level Three, where there are rapidly evolving market conditions, movement of more than 40% in the last 12 months, and multiple reviews and revisions are typical amongst comparators. While the surge of inflation has been swift in the country, labor market data has not moved as fast.  

Based on our salary survey analysis, no labor market movement was observed in July 2021.  

The chart above shows labor market movement in Ghana against reported inflation rates from July 2021 to July 2022 based on Birches Group’s multi-sector salary survey. As seen in the chart, labor market movement significantly increased in 2022, but inflation rates have always been much higher and moved at a faster rate from 2021. We believe this is because inflation or the cost of living is not directly proportional to the cost of labor. 

Next steps for employers 

When labor market conditions become volatile, such as in Ghana, organizations should establish policies and procedures to keep pay programs functioning and maintain business continuity. Through a Special Measures Policy, organizations need to determine the appropriate triggers based on labor market conditions that demand an update in salaries and benefits. Organizations must also decide how they plan to implement the next steps for their staff. Employees need to know that they can count on their employer to assist them amid the burgeoning crisis. 

How can we help 

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

References: 

  • 1 August Market Monitor Report 

UNDERSTANDING TOTAL COMPENSATION

Written by Kai Donesa on . Posted in Resources.

In Birches Group, we apply a total compensation approach when analyzing salary survey data.  While we understand that many employers are primarily interested about how their base salaries compare against other comparators, we should not forget that benefits also play an important role in many markets, particularly in developing countries.

For many years, Birches Group has been conducting salary surveys in over 150 countries around the world. Our experience working with high growth markets has shown us that when employers center their decisions on base salary alone, they are essentially discounting the value benefits have in that market and its possible impact on staff recruitment and retention.

If you are working with developing market data, here are three reasons why total compensation is the best approach:

  • Pay Packages Can be Varied – Every organization has its own pay policy. This policy then guides how organizations design their pay packages. Depending on how competitive they want their salaries to be, the types of benefits they can include, and their target peer group, you can imagine how varied pay packages can be in just one single country. In some markets, benefits could be government mandated, some could be cultural, and others could address local market conditions. If all these benefits are provided by majority of your target comparators, then it would not be enough to compete on base salaries alone.
  • Market Practice – As mentioned, some benefits are considered statutory, while others are cultural in nature. It is the responsibility of the employer to know what the local market practice is and tailor their pay policy around this. Not only do you have to abide by what the law states, but also some benefits are given for historical reasons. Concentrating on just cash could make you fall short in the point of view of your staff.
  • Being Competitive – Not all organizations compete the same way. Some companies like to have competitive base salaries but not provide many benefits, while others may not have competitive base salaries but offer very attractive benefits. The only way HR can properly determine competitiveness is through a total compensation view. We believe that it is important for employers to have a “healthy” mix of base salary, cash, and in-kind benefits at every level, where pay packages are competitively aligned to your market but still following internal policy.

Birches Group surveys are designed with developing markets in mind. Our survey reflects employer practice for a wide variety of allowances and benefits, both cash and in-kind, demonstrating nuances commonly found in these markets. And because developing markets are dynamic, every country is updated on an ongoing basis three times a year, in April, July, and October. Contact us to access the survey data that you need.

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

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.

JOBS, GRADES, INCUMBENTS: UNDERSTANDING THE LIMITATIONS OF SURVEY DATA AND HOW TO AVOID SURVEY DATA PITFALLS

Written by Kai Donesa on . Posted in Resources.

Salary surveys are an important HR tool. They are necessary for organizations to properly manage and maintain compensation every year. However, survey approaches can differ greatly from one provider to the next, particularly in the information they collect, their approach to job matching, and their treatment and presentation of employer data.

When deciding which survey data to use, it is essential for HR practitioners to familiarize themselves with the kind of information that each survey provides, the methodology behind the analysis, and the limitations that come with every approach. Here are some things to keep in mind to help organizations steer clear of typical salary survey missteps:

  • Limits When Working with Job Data – in our article, “Measuring Market Position”, we explained that too much emphasis has been placed on certain occupations just because they are considered ‘hot jobs.’ But occupational variance is not as significant as you think, especially when looking at salary surveys, because when you update your salary scale, you essentially update your grade levels – and grade levels are generic, not based on occupations. When looking at survey data, job data can be a useful additional reference if you want to look deeper into the market data. But it is important to note that job data is not what impacts your salary scale, but grade level data.
  • Limits When Working with Incumbent Data – we have mentioned in a few of our past articles how incredibly misleading incumbent data can be when used as a survey data reference. Many employers believe that if a salary survey reports actual incumbent salaries, the market data is somehow perceived as more ‘accurate’. In Birches Group, we believe that salary range data, not incumbent data, provides a more stable and realistic view of the labor market. Incumbent salaries are person-based, highly dependent on the qualities of the individual sitting in that position. When working with incumbent salaries, it is common to find outliers that significantly skew the overall market data because their individual salaries are influenced by other factors separate from the job. But when salary ranges become the reference, this provides a more accurate picture of market movement and serves as bookends that prevent outliers in the analysis.
  • Limitations When Working with Just Base Salary – some employers, when looking at survey data, tend to rest their analysis just on base salary information. The problem with this approach is that in majority of labor markets around the world, base salary is only one component of an employee’s actual compensation. To be considered as an employer of choice, you will need to look at the full package, and that includes benefits – cash and in-kind – as well as market practices on non-salary benefits such as pension, medical, etc. In some markets, benefits have a big impact when it comes to recruitment and retention. In other countries, some benefits are mandatory, some cultural, while others address local hardships.

Birches Group’s conducts compensation and benefits surveys in over 150 countries around the world. Our multi-sector approach is designed for high growth, developing markets where leading employers determine local market trends and practices. We capture data from a total compensation perspective because in many of these markets, base salary is only part of the picture. Additionally, because developing markets are volatile, our surveys make use of salary range data to provide our participants a more accurate movement of the market that is linked to the purpose of the job, not the incumbent. Lastly, our surveys are updated three times a year, every April, July, and October which guarantees our clients fresh data every time. Contact us to learn more about our Community™ Compensation and Benefits Survey in your country.

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

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.

composition and position from the salary survey

BUILDING YOUR SALARY SCALE: DETERMINING COMPOSITION AND POSITION FROM THE SALARY SURVEY

Written by Kai Donesa on . Posted in Resources.

Understanding the importance of determining your composition and position from the salary survey can improve the way your organization can move forward with your salary scale

Salary surveys are an important tool and step that managers use when building or refining their company’s salary scales. This helps managers establish and set appropriate compensation and benefits within their organization based on information provided by other employers present in the labor market. Current salary surveys offer different methodologies to capture market data, each one with differing employer samples, compensation and benefits information collected, and more importantly, varying approaches to job evaluation. All these are important factors to consider when selecting the right survey to use when building your salary scale.

Often, especially in large labor markets, there has been a preference among many employers to go with the salary survey that has the biggest employer sample. While this approach may seem reasonable, the reality is that many of the employers in the survey will not be relevant comparators, especially if they do not compete with you for the same jobs or share similar characteristics as your organization.

After establishing your compensation policy, creating your job structure, and participating in your chosen salary survey, determining your composition and position in salary surveys is the next crucial step towards building your salary scale.

Selecting the Right Comparator Group

Composition refers to the composition of the market used to establish your competitive position. Many employers will say, “We want to be at the 50th percentile of the market.” Composition answers the question, “50th percentile of what market?”

When designing your scale, you should establish a refined comparator sample, made up of employers important to your organization. Your compensation philosophy should identify the number of comparator organizations to be selected and the criteria they must meet to be included in your market comparison. Examples of criteria to consider include:

  • 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

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.

Targeting Your Market Position

Once you have narrowed down your target comparator group, you will need to identify your desired market position. Position is the expression of how competitive you wish to be against your defined market – your target market position. The 50th percentile, or median, is a common target. That means you will be right in the middle of the pack. Is that where you need to be to reach the talent you wish to recruit and retain? Is it the same for all levels of the organization?

Before deciding on a percentile, it is important to refer to your organization’s pay policy. This will ensure that your resulting analysis aligns with the standards approved by your management, is credible, and is easily defensible to stakeholders. Selecting your target market position also depends on whether you wish to lead, match, or lag the market.

If you match the market, you are anchoring your salary scale to where the market is today. With lead or lag positions, you are deciding to either get out in front of the market or trail behind. A simple way to lead is to estimate the market movement from the date of your scale for a period of time forward — typically a year. This ensures your scale is competitive even as other employers adjust their compensation during the same period. A lag position is usually not desirable, as you will be trying to constantly catch up to your peer organizations.

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.

Finally, do not forget to consider budgetary resources. Whatever steps you take in the design of your structure need to be made with the cost impact in mind.

Understanding the importance of determining your composition and position from the salary survey can improve the way your organization can move forward with your salary scale. Hopefully, with this information, organizations will feel more informed and empowered to build one of the most important tools in human resources management. Birches Group conducts salary surveys in over 150 countries around the world and uses a simple and straightforward job evaluation approach to ensure consistency throughout. Through our surveys, we help organizations design salary scales that will fit their needs. Contact us to learn more about how we can help you 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.

Salary Scales

BUILDING YOUR SALARY SCALE: WHY BOTHER HAVING A SALARY STRUCTURE?

Written by Kai Donesa on . Posted in Resources.

A salary structure is essential in every organization. It is the single most important document in human resources. Build a salary scale and have a salary scale, why bother? It tells you everything you need to know about an organization:

  • How the organization positions itself in the market
  • The value the organization places on its jobs
  • How relationships across jobs are managed
  • Possible career progressions
  • And where the organization stands on equity and transparency

For an organization to work efficiently and achieve team cohesion, a well-balanced salary scale is crucial as it drives all other critical HR programs — everything from recruitment, staff retention, promotion, and ultimately career development.

Many organizations fail to realize the value of a salary scale. More than just pay ranges, a salary scale, when used correctly, can guide an organization to efficiently execute all its different HR functions and strategies, from managing compensation to managing its people.

Beginning with compensation, though, the fundamental purpose of a salary scale is to provide a framework for managing salaries. Setting competitive hiring rates that facilitate recruitment, establishing pay ranges that show value for experience, and defining the differences in pay from one job level to the next — all these need to be managed carefully to ensure that organizations are attracting and retaining the talent they need while maintaining team cohesion.

Of course, salary scales’ use extends beyond compensation. Learning and development milestones can be defined by the underlying job structure used to build the salary scale, which enables effective career pathing. Salary scales can also facilitate the mechanisms to reward employee development through recognition of skills growth. Finally, a well-designed salary scale demonstrates and promotes fairness and equity within the organization.

To develop salary scales to meet the unique requirements of your organization, you need to start by establishing your job structure, defining your compensation philosophy, and developing your scale design methodology.

This is the first of our blog series on “Building Your Salary Scale.” In our next post, we will be discussing how you can begin to develop your organization’s compensation philosophy and the different elements that need to be considered. Birches Group can help design a salary structure that meets your organization’s needs. 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.

Webinar – Managing Compensation in Volatile Economies

Written by Bianca Valencia on . Posted in Uncategorized.

Birches Group and The HR Partners held a Webinar on March 2, 2016 on the subject of “Managing Compensation in Developing Economies.”  If you were unable to join us, or just want to listen to the content again, you can watch a video of the full webinar below.

Date:  Wednesday, March 2, 2016
Time:  9:00 (New York) / 12:00 (São Paulo) / 14:00 (London) / 16:00 (Johannesburg) / 18:00 (Dubai)

Watch the Webinar Recording:

Download the Presentation

Download the Questions and Answers

FIVE STEPS TO BENCHMARK YOUR COMPANY’S COMPENSATION AND BENEFITS

Written by Bianca Valencia on . Posted in Resources.

In human resources, salary benchmarking serves many critical needs. It helps organizations assess the competitiveness of their total compensation versus the market, and is an important step in managing your human resources program. When organizations look to introduce new positions, salary benchmarking ensures a good understanding of the prevailing market conditions.

Here’s a short checklist – five steps – to follow for your next benchmarking exercise:

  1. Start with a High-Quality Survey

To do any benchmarking, you need market data, and that market data comes in the form of a survey.  The foundation to any market survey is its job matching approach. The job matching exercise ensures that jobs of similar levels of complexity are benchmarked against each other to establish common value across the market. 

It’s important to understand the methodology for job matching used by the survey provider and how the process is managed.  Are clients responsible for job matching, or does the consultant take the lead?

In Birches Group’s Community™ Market surveys, our survey specialists perform the job matching on behalf of every client, ensuring consistency and high-quality.

We use a job matching methodology that is simple, clear, and consistent, based on our Community™ Jobs evaluation approach.  Community™ Jobs considers three factors – Purpose, Engagement, and Delivery.

Purpose enables us to examine each role within the organization and determine its primary objectives and how it supports the overall mission of the organization. Engagement identifies how each job interacts and collaborates with internal and external stakeholders to carry out its function. Delivery examines how each role plans, organizes and delivers work to fulfill the organization’s mission.

These three factors are present in any job, at any level. And together, they allow us to understand how an organization conducts business across all levels of work, starting with defining the purpose of its jobs, determining their level of engagement, and examining how each of its roles organizes and delivers service.

2. Focus on Grade Data

Many salary surveys take pride in the number of specific jobs captured in their surveys, but this is really a questionable practice.  Most organizations use generic pay bands and set pay ranges for all jobs at a particular level across all occupations.  Jobs with the same internal grade are paid in the same pay range, so the differences measured in the survey between different jobs are based not on job characteristics at all, but personal ones, like performance or tenure. Job data is also easily affected by the number of incumbents matched to a particular role, giving an illusion of precise differences based on volatile data of questionable value. The differences reported in the survey by job are misleading. 

When benchmarking your salaries, we believe that organizations should focus on grade data. Grade data is based on the job level and the associated ranges, and not the actual people sitting in those jobs. It’s a more reliable analysis because grade data captures all jobs with the same contribution level to an organization.  Grade data is a more stable representation of actual market movement versus incumbent salaries, which is highly variable.

3. Know Your Target Market

Before making your assessment, it is important that you select the survey comparators that are relevant to your organization. Out of the bigger survey sample, you will need to choose a smaller group of comparators relevant for your organization.

Market surveys can have twenty to over a hundred participants, or even more. But it does not necessarily mean that you compete with each one of them. If you are unsure where to begin with your selection, the criteria below are great places to start:

  • Organizations working in the same/similar sectors;
  • Those which you have lost staff to/hired staff from;
  • and Organizations in the same geographic area. 

You should also consider comparator organizations which share a similar Employee Value Proposition (EVP). Each company’s EVP is different, but look for organizations that have similar mission, approaches to career development, or pay and benefits philosophies similar to your own organization.

4. Identify Your Market Position

Once you have narrowed down the selection to your chosen comparators, the next step is to identify which level or percentile of the sample you want to target. But before making that decision, you will need to go back to your company’s EVP. Your EVP for total rewards should state your organization’s objective for competitive market position. 

Organizations typically state their target market position as a percentile of the targeted comparator group.  A position versus the 50th percentile or median of the market is common; going higher or lower is OK, too – it depends on what talent market you are trying to reach.

Being competitive is not always just about salaries. Allowances and benefits – monetary and non-monetary – can also be used to attract and retain talent. In our own experience, we have encountered companies that choose to position their salaries a bit lower in the market range but offer additional benefits on top of market practice. Again, depending on your company’s EVP, its all about striking that balance.

5. Always Use Fresh Data

If you are responsible for managing your company’s compensation and benefits, one concern that you might have is making sure that you are working with the most updated market information. Companies that have solid compensation policies will still struggle to maintain their competitiveness in the market if they are working with outdated information.

In Birches Group, we recognize that not all organizations update salaries at the same time every year or apply the same frequency between salary reviews. We know that organizations choose to participate in salary surveys when it makes sense for them. Our surveys are evergreen, with the opportunity to participate when it makes the most sense for you, and multiple publication dates.

Our Community™ Market salary surveys are updated three times a year, every April, July, and October. This ensures that we always have the freshest data in our surveys and that any change to your compensation and benefits can easily be captured anytime during the year. Our evergreen approach also allows us to grow our survey sample throughout the year, providing our participants with the most robust data possible.

Birches Group provides labor market information for over 150 countries around the world. Our compensation and benefits surveys cover a full range of professional and support levels, providing information that ensures a client’s pay practices are aligned with the market conditions of leading employers in each country. 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.

A close-up of various international coins and banknotes scattered in a disorganized manner.

MANAGING COMPENSATION WHEN UNCONTROLLABLE EVENTS OCCUR

Written by Bianca Valencia on . Posted in Resources.

Lately, we have been receiving a lot of inquires from clients about how to best manage compensation in high-inflation countries, including Ghana, South Sudan, Zambia, Argentina,  Venezuela, Kazakhstan, etc. (to name a few!). This post shares our guidance about managing compensation when uncontrollable events, like hyper-inflation, impact the labor market.

What are “Uncontrollable Events”?
The world is a complicated place to do business. There are many unforeseen circumstances that occur to disrupt the normal dynamics of a labor market. Examples include:

  • hyper-inflation, devaluation and other economic events;
  • natural disasters, such as earthquakes, floods, etc.;
  • periods of unrest, civil war or other armed conflicts; and
  • accidents impacting infrastructure such as the power grid and telecommunications.

I’m sure you can think of other situations that fit the definition.

You Need to Have a Policy for “Special Measures”
The common thread in all of the above uncontrollable events is uncertainty — nobody knows what’s going to happen, how long it will last, and what tomorrow may bring.

A Special Measures Policy is a way to assist managers and staff when a crisis occurs. The policy outlines what the company will do when certain uncontrollable events occur.

It might not be what employees want or ask for, but it’s what they can count on from the Company, which turns out to be even more important. Let me give you some examples using the topic everyone is asking about – high inflation.

How to Manage Compensation During Periods of Economic Turmoil
Suppose the situation you are concerned about is similar to what happened in Ghana in the summer of 2014. Devaluation over the 12 months from July 2013 in Ghana was approaching 50%. Various sources reported the annual rate of inflation in Ghana around 15% and trending higher, perhaps towards 20% by year-end. Some sources were reporting even higher numbers.

The first thing to consider is whether or not the situation qualifies as one which should be addressed by special measures. Inflation of 15% to 20% is high, but if the increase is gradual each month then it might be possible to address it through normal compensation management, perhaps with an extra pay adjustment mid-year. But if the inflation rate were higher, say 25% or more, and the increase in inflation happened all at once (or over a short period of time), then special measures might apply. Devaluation is generally not a factor in determining salaries for local staff. However, high devaluation is normally followed by periods of high inflation, so it becomes relevant.

Our recommended approach to managing a situation like the one described above is as follows:

  • If the threshold you’ve set for inflation (for example) is reached or exceeded, apply your special measures. When establishing thresholds, be sure to identify multiple, reliable data sources. Be wary of official sources.
  • We suggest providing an across-the-board increase of no more than 25% of the inflation (e.g., if inflation is measured at 40%, provide no more than 10%, which is 25% of 40%). Be sure to consider your desired market position and adjust the increase to be sure you don’t exceed where you want to be positioned in the market.
  • Treat the increase as a temporary allowance separate from base salary.
  • Monitor the market over the next three to six months through the use of market surveys, and conversations with consultants and other employers in the market.
  • When the market movement, as measured by the surveys and other data, exceeds the amount of the temporary increase, it’s time to convert the temporary allowance into base salary.
  • Having two increases per year instead of one often helps smooth out the disruptions, too.

Why does this approach work? There are several reasons:

  1. You have a policy which can relied on by your employees, providing them with some certainty in an otherwise uncertain period in their country.
  2. While employees often express the need to be “kept whole” that is not how it works — your policy clearly indicates that the Company will offer only partial compensation for special measures. There are no surprises, and you continue to use cost of labor, not cost of living, to drive your compensation program.
  3. It’s a very conservative approach, allowing you to continue to monitor the situation and increase salaries slowly, ensuring you can continue to manage your compensation according to market conditions rather than uncontrollable economic events.
  4. It’s unlikely that you will over-compensate for an event, thus allowing you to have positive employee communications and avoid any possible acquired-rights issues.

There could be variations on how a Special Measures policy is implemented, which types of events are covered, and the specific steps each Company decides to follow.

The important thing is to have a policy and use it.

Employees want to rely on you to help them during a crisis, and managers want to be able to make decisions quickly during difficult times. A clearly written policy for Special Measures addresses these concerns easily.

Other Resources
I have written a few other articles for my blog on related topics that you might find useful as well. Although they were written a few years ago, the information is applicable to current conditions as well.

Here are three useful links:

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Warren joined Birches Group in New York as a partner in 2007, following a long career in Compensation and Benefits at Colgate-Palmolive. He held the position of Director, International Compensation for 10 years immediately prior to joining Birches Group. Warren has broad experience working across the globe with clients on local national and expatriate compensation projects. He leads our Business Development and Client Services teams and manages our strategic partnerships around the world. Warren previously held leadership positions for the Expatriate Management Committee of the National Foreign Trade Council and was president of the Latin America Compensation and Benefits Forum.

COMPENSATION TIPS IN WAR-TORN COUNTRIES

Written by Bianca Valencia on . Posted in Resources.

Geopolitical tensions in the Middle East have taken a severe toll in the region’s economic stability. Countries currently confronting waves of unprecedented civil wars such as Yemen, Syria, Iraq, and Turkey, along with an unprecedented flow of refugees, have achieved very minimal GDP growth in the recent years. And there is spillover to neighboring countries such as Lebanon and Jordan as well. 

The economy of Yemen, for instance, contracted by 28.1% after a year of ravaging conflicts since March of 2015, indicating an imminent hyperinflation. On a broader scale, inflation in the MENA region surged from 3.9% to 4.1% in May – the highest rate since October of 2015. 

Living in war-torn areas is grueling and difficult for employees.  Volatile prices result from high inflation rates, coupled with periodic shortages of goods. These uncontrollable events are disruptive, and quite often, employers are compelled to rethink compensation packages to help address the pain and difficulty of living amid civil unrest, especially where the turnover of staff is uncomfortably high. 

In countries experiencing a crisis, monitoring GDP, inflation rates, and other economic indicators along with survey data may be insufficient for you to determine proper salary actions. As employers, you need to ask: with fluctuating inflation and limited availability of reliable data, what is the best way to manage compensation packages? 

A Way Forward 

Reviewing your compensation policies requires looking at how other organizations adapt and react in conflict-stricken economies. Instead of just increasing base salaries, which permanently increases fixed costs, employers sometimes provide special benefits such as cash allowances instead, which are usually implemented on a temporary basis. This approach allows employers to respond conservatively and manage costs effectively until the political turmoil in the region gets resolved. In Iraq and Syria, for example, some employers have reported providing a Risk Allowance to their staff during times of conflict.  Such steps go a long way towards ensuring loyalty and reducing undesirable turnover. 

Employers can also take steps to assist staff with commuting to the office safely, and other security measures.  Work from home options are also helpful when it is too dangerous to travel to the office. 

Even though declining oil prices are impacting the region’s economy, the World Bank reports that the private sector is hoped to become the backbone of a new growth model in the Middle East, especially when effective policies are able to address security conditions and long-standing conflicts that currently upset business sentiment. As the economy recovers, the market will soon catch up, and salaries will increase more rapidly. 

Birches Group provides updated, concise, and easy-to-digest labor market data reflective of the actual market conditions on which you can base your decisions. Using a cost-of-labor approach, our data allows you to monitor market movement over short- and long-term periods.  Our surveys are updated three times a year, in April, July and October, providing a current window to market practice on a continuous basis. 

To find out more about the conditions in countries mentioned in this article, or to learn more about Birches Group surveys throughout the developing world, please contact us. 

Warren joined Birches Group in New York as a partner in 2007, following a long career in Compensation and Benefits at Colgate-Palmolive. He held the position of Director, International Compensation for 10 years immediately prior to joining Birches Group. Warren has broad experience working across the globe with clients on local national and expatriate compensation projects. He leads our Business Development and Client Services teams and manages our strategic partnerships around the world. Warren previously held leadership positions for the Expatriate Management Committee of the National Foreign Trade Council and was president of the Latin America Compensation and Benefits Forum.