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NAGING NG NGO MA MANAGING CO COMP MPENSAT NSATION ION IN VOLA LATILE ILE ECO CONOMIES OMIES March 3, 2016 Webinar Specialized HR consultancy headquartered in New York, with offices in Manila, Philippines; Ume, Sweden; and

  1. NAGING NG NGO MA MANAGING CO COMP MPENSAT NSATION ION IN VOLA LATILE ILE ECO CONOMIES OMIES March 3, 2016 Webinar

  2. Specialized HR consultancy headquartered in New York, • with offices in Manila, Philippines; Umeå, Sweden; and Riga, Latvia We conduct NGO Local Pay salary and benefits surveys • in about 86 countries globally, and multi-sector surveys in 148 countries We work with over 300 international NGOs and • development organizations We partner with the CHS Alliance to promote sound HR • practices in the development sector

  4. • Introduction • Key Concepts • Case Study – Malawi • A Policy Driven Approach • Dollarization • A Quick Look at Expat Compensation • Wrap-Up • Q & A

  5. • Inflation: – Measures the increase in cost of living – Typically issued by government statistics bureau – Market basket approach measures prices in country over time – Government statistics sometimes unreliable • Devaluation – Measures currency exchange rates, typically versus USD or other hard currency – Currency markets are volatile and react to many factors including political ones

  6. • Donor budgets are fixed • Impact ( • Impact on price of local on hard currency goods and supplies budgets • Compensation increases • Increase in price for over time imported raw materials • Supply of hard currency through banking system

  7. • Desire to be kept “whole” • Making less in hard currency • Concern about ability to terms (does that really maintain their standard of matter?) living • Imported goods will increase • Can they afford staple items in price for their family? • Ability to cover offshore • Look to employer to help expenses • Will seek in-kind benefits rather than currency (keeps value)

  8. • Employers competing for talent form a labor market • Labor markets behave according to the classic economic theory of • •

  10. • There has been a period of economic instability since 2012: – Inconsistent growth – Steady, high inflation – High devaluation

  11. Source: Barry Rodin, Independent Economist

  12. They are for salary setting, • but… There is between • salary market movement, inflation and devaluation

  13. Source: Birches Group LLC, NGO Local Pay Survey

  14. Source: Birches Group LLC, NGO Local Pay Survey

  17.  Mission and Values  Reputation and Ranking  Work Environment Affiliation  Institutional Culture  Variety  Base Salary  Challenge  Support to Expatriation Work  Structure Pay  Reward  Autonomy Content  Pay Process and Transparency  Feedback Employment  Impact Value Proposition  Advancement  Personal Growth  Health  Recognition  Retirement Benefits Career  Training  Work Arrangements  Employment  Tuition Security

  18. , , • • Defines the relationship of the employer to the market, and within/across the team • Determines level of competitiveness and provides a structure aligned to career progression • Provides for staff to enjoy a certain quality of life

  19. Compensation Policy • – Targets the appropriate market position and composition to sustain competitiveness – Defines the reach of the organization for seeking critical skills Good Administration • – Enables the securing of timely/accurate market data – Translates market data into dynamic salary structures – Brings and to setting and maintaining pay

  22. • Maintain office operations • Address staff anxiety • Demonstrate responsiveness which is responsible • Maintain linkage to established pay policies •

  23. • Sets precedent for later and other countries • Sensitive to: – Resource constraints – Linked to the market – Community image • Allows organization to act quickly without lengthy approvals • Has an exit strategy

  24. Set a Define a Define a Timeframe Plan Your Exit Trigger Point Response and Monitor

  25. • Significant devaluation – Example: Minimally 40% within a six month period accompanied by price spikes in basic commodities such as food • High inflation – Example: 50% devaluation at one time, or inflation above 20% for three consecutive months • Consider what data source you will use

  26. • Temporary allowance of 25% of inflation or devaluation amount • Immediate payment – Ongoing allowance, not part of base salary – Bonus to cover any retroactive period • Always consider your competitive market position

  27. • Check market movement regularly • As more employers respond to the crisis, market will start to move up • Periodically, say every three months, decide if you should convert some or all of Special Measures allowance to regular salary • Always consider your competitive market position

  28. • Market has caught up or overtaken the amount of Special Measures Allowance • Convert Special Measures Allowance to regular salary and end the allowance • Always consider your competitive market position

  29. Trigger is Market Market Exceeds Reached Monitoring Special Measures • 25% of the • During the trigger next 3-6 • Roll into salary amount is months, • Eliminate established as monitor allowance a special market measures movement allowance • When market • Take your movement market occurs, position into increase base account and salary and adjust reduce accordingly allowance in equal amounts

  30. Trigger is 40% devaluation over 6 months • 3-month devaluation is 43%; • Special measures allowance of 10.75% (25% of 43%) is • instituted 4 months later, survey data shows market movement of 7% • – Option 1: Recharacterize 7% from allowance to salary – Option 2: Continue market monitoring 6 months later, survey data shows market movement of 13% • – Move remaining allowance into salary and eliminate Marketing monitoring is critical, • :

  31. • What is granted cannot be taken away or reduced; at best it can be frozen • It is to tailor measures for individual staff to address different personal situations or needs

  32. • Employees want to know • Employees understand that their employer cannot necessarily “keep them whole,” • Managers and employees alike appreciate the clarity a clear policy provides

  33. • Advise staff of measures taken at each stage to demonstrate responsiveness • Remind managers and staff about the policy provisions • Be empathetic to their financial pain • Emphasize a continuing link to the labor market

  34. *Hard currency is US dollars, UK Pounds, Euros, and other global reference currencies

  35. Nej! אל ! ¡No! Hakuna! لب ! 不！ In a n any ny lan angu guag age, e, the he an answ swer is no s no! Não! Non! Нет ! Nee! ไม่ ! Nein!

  36. • Unless – It is supported by comparator practice – There is no functioning local currency • Caution – Paying in foreign currency in some countries is illegal – Staff may be at risk if they participate in black market transactions

  37. Easy to start Difficult to set exchange • • rate Simple to explain Local currency could • • Creates a mindset which • separates local staff from the local economy Difficult to end •

  38. If you switch to hard currency, you will overpay your staff. In the case of Malawi from 2012 to present, if your compensation tracked cumulative devaluation, it would have increased by the market (increase of 391% vs 136% market movement)

  39. • If a significant number of employers adopt hard currency, it skews the market in relation to those still using local currency • Case in point: Mozambique

  41. • As an employer, it is the labor market that determines the level of pay • Special Measures are temporary and supplemental, not a replacement for labor market comparisons • Goal is stabilization not insulation • Demonstrates your willingness as an employer to respond within the constraints of resources and sensitivity to the broader context • Clear communication is absolutely essential

  42. • Objectives • Are they on a local payroll? • How is their package constructed? – Local rate – Balance sheet – Other • Not all of their pay is spent locally • Does the company already pick up some costs directly?

  43. • NGOs should pay careful attention to labor market movement rather then inflation/devaluation “ noise ” • A policy-driven approach promotes transparency and reassures staff that the company will help when necessary, without sacrificing their market-driven basis for compensation • You need reliable data, especially in the most dynamic global markets

  44. General Inquiries • Join NGO Local Pay info@ngolocalpay.net on LinkedIn https://www.linkedin.com/groups/3371682 Curtis Grund, Practice Leader (New York) • curtis.grund@birchesgroup.com Warren Heaps, Partner, Birches Group LLC (New York) • warren.heaps@birchesgroup.com Online: Questions and Answers • We have compiled questions submitted during Birches Group website • the session www.birchesgroup.com • We will answer as many as we can in the time remaining • Others will be answered in writing and NGO Local Pay website • summarized for all attendees www.ngolocalpay.net

  46. BG Office Survey Country Partner Office

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