Tag: special measures

Crisis in Syria

A Closer Look at the Economic Crisis in Syria

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.

Now approaching its 12th year, the conflict in Syria is one of the most complex geopolitical and humanitarian emergencies of our time. The International Crisis Group describes the situation as a “constellation of overlapping crises” with years of ongoing hostility.

What began as part of the Arab Spring uprisings has developed into an unending civil war involving world powers. Today, the Syrian Arab Republic faces massive economic hardships and limited political progress. 15.3 million Syrians—almost 70% of the population—need humanitarian aid, says the United Nations Office for the Coordination of Humanitarian Affairs (UN OCHA).

A matter of strength and survival

Over a decade of conflict has had disastrous effects on the local economy. 90% of Syrians live below the poverty line, and unemployment among the youth has reached 60%, the UN Development Programme reports.

The socioeconomic impact of the conflict in Syria is growing and ever-deepening. Conditions are deteriorating, and life is more challenging than ever. Syrians are dealing with a multitude of shocks, especially the following:

The Syrian pound depreciates. The Syrian pound’s unprecedented weakness is one of many indicators of a worsening economy. The Syrian pound has lost almost 75% of its value against the United States (US) dollar throughout 2022. The Central Bank reduced the official exchange rate for the second time in four months from 3,015 to 4,522 Syrian pounds for one US dollar. The rate in the parallel market, which is used for most local economic activity, is much higher at around 6,500 Syrian pounds.

Basic commodity prices skyrocket. The depreciation of the Syrian pound has led to rampant inflation, eroding real wages. According to Euro-Med Monitor, necessities are unaffordable, with prices increasing eightfold in the past two years. The Syrian regime has also led an austerity campaign, pulling subsidies for essential goods and services. And yet the income of most families has not increased.

A fuel and electricity crisis hits Syria. A longstanding agreement with Iran has faltered as shipments have stalled. The Wall Street Journal reports that Iran has restricted its monthly oil supply to Syria due to price increases and high demand in winter. This recent development has crippling effects. Since December, a severe fuel crisis has affected almost every sector in Syria. Three-quarters of Syrian households have less than eight hours of electricity every day. The power outages have driven many to rely on candles to light their homes. People burn shoes, clothes, trash, tires, and even pistachio shells for heat. The government has cut its work week to four days to save on energy costs, and working overtime has been banned.

Syria’s economy may have hit its lowest point since the start of the civil war in March 2011. Associated Press reports that, since wages don’t come close to meeting the cost of living, most Syrians live on remittances, multiple jobs, and humanitarian aid. The Center for Disaster Philanthropy also notes that the situation has forced people into survival strategies, such as eating less and selling fuel aid to buy food.

Without a political solution to the conflict, the economic crisis in Syria is expected to continue, and analysts expect hyperinflation to begin this 2023. The situation is still bleak as the country goes deeper into the crisis.

What our Market Monitor shows

Since we first published the Market Monitor report in mid-June 2022, Syria has been on Level One in the first five months of our monitoring. Level One reflects standard market conditions, with a 0 to 20% movement in the local exchange rate over the past 12 months.

But in our November and December 2022 reports, Syria was excluded from our list of volatile markets. During this time, the movement in the local exchange rate fell below 10%. By early January 2023, the exchange rate had not significantly moved in the last two months.

Syria reentered our list at Level Four in our latest (mid-January 2023) report. This abrupt level increase shows a sudden and unexpected socioeconomic event and a local currency devaluation of 50% or more in the past six months.

How Birches Group can help

Policies and procedures for keeping pay programs functioning in markets like Syria are critical. Develop a Special Measures Policy with triggers and immediate responses for supporting staff. Also, decide how your organization plans to carry out its next steps. Employees need to know they can rely on their employer to help them during times of crisis.

Birches Group can help your organization design responses to recent developments in Syria. We are experts in developing Special Measures Policies for organizations across sectors, including nonprofits and leading multinational companies. Get in touch with our consultants today to learn how we can create a Special Measures Policy for you.

References:

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.

References:

Turkiye's Hyperinflation

Turkey’s Hyperinflation and How Employers Are Weathering the Crisis

Written by Kai Donesa on . Posted in Uncategorized.

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

Turkey, a Eurasian hub of 84 million people, is weathering an unprecedented economic and monetary crisis. Inflation is a major issue, with rising prices chipping away at purchasing power every week.

The Turkish Statistical Institute reported that Turkey’s annual inflation rate reached 83.45% in September, the highest in 24 years. Independent economists from ENAGrup believe the actual figure is 186.27%.

Inflation has been soaring in Turkey for 16 months, yet Bloomberg reports that price growth in the transcontinental country has been in the double digits since early 2017.

The country has suffered debt and currency calamities in the last few years, says The Wall Street Journal, but the current crisis is different. According to a report from Capital.com, aggressive interest rate cuts, high energy and commodity prices, heavy dependence on imports, and a depreciating Turkish Lira have contributed to surging inflation rates.

A paper from the Middle East Institute states that Turks have been driven to protect their savings by changing Lira deposits into gold and foreign currencies such as the Euro and United States (US) dollar. The tendency to keep savings under the pillow is also an ongoing trend.

What the government is doing

The Turkish government has taken several measures to protect households from high inflation. These mechanisms include:

  • Protecting Lira-denominated bank deposits
  • Raising the minimum wage by 50% in January and by 30% in July
  • Giving social transfers to poor households
  • Placing a 25% cap on rent increases
  • Reducing taxes on utility bills and introducing fuel and energy subsidies
  • Slashing value-added taxes on specific goods

But the measures have had little impact on the lives of Turks.

What the employers are doing

As their purchasing power shrinks and their job security erodes, many Turks are falling out of the middle class, says The Economist.

People are getting upset as they see their living standards falling. Businesses have been affected by the Lira’s fall in value, while people’s wages have been depleted because they can now buy less with their money. The price surge has upturned household and company budgets, and many are scrambling to cut costs. Over two-thirds of Turks are struggling to pay for food and cover their rent, according to a survey by the Yoneylem Social Research Center.

As a result, workers are negotiating higher salaries, and employers are taking proactive steps. Here are a few examples of what employers in Turkey are doing in response to mounting inflation:

  • Implementing across the board salary increases of between 15% to 30%
  • Improving allowances for items such as meals and transportation
  • added cash incentives or bonuses

Beginning summer last year, Mustafa Tonguc, the chief executive of DHL Express in Turkey, compiled a list of the cost of 50 essential products and compared them with their German equivalents to persuade bosses at headquarters to raise the wages of over 1,000 staff. According to the Financial Times (FT), Tonguc would raise wages three more times in the year ahead. “We as a business can’t fix the global economy, but we can take care as much as we can of our people,” Tonguc told FT. “In the last 12 months, many companies went bankrupt. We felt people should be assured of their job security,” he added.

How we can help

Policies and procedures for keeping pay programs functioning in highly volatile countries like Turkey are vital. A Special Measures Policy should be set up to determine the triggers and equivalent measures to support staff and ensure business continuity during volatile periods. In addition, organizations must decide how they plan to implement the next steps for their staff. Employees need to know that they can rely on their employer to help them during times of crisis.

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.

References:

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

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 

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:

DOWNLOAD PDF

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.

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