International Relocation Specialist

In case you haven’t noticed there have been some significant exchange rate movements in the past few months due to the global financial crisis that is churning. International HR professionals are well aware of this and so are expatriates whose compensation packages appear to be impacted by such movements.

For example, the U.S. dollar has declined significantly since late 2006; it then rebounded abruptly in the Fall of 2008. Five currencies have experienced noticeable changes in the last two months, the Australian Dollar (AUD), the Brazilian Real (BRL), the Canadian Dollar (CAD), the British Pound (GBP) and the South-Korean Won (KRW).

So what should companies do about this? First, they should use specialist third party organizations such as ORC and Air Inc. to provide advice on cost-of-living data and other related information to help provide accurate solutions. These companies use complex formulas to track cost-of-living and related exchange rates to minimize the negative financial impact that currency fluctuations can have on expatriates living under one currency but being remunerated in another currency.

Such currency volatility is not unprecedented, and urgent action is not normally required as long as allowances and payments are reviewed frequently; for example moving to a quarterly review may be worth considering. Only where inflation is running out of control should exchange rates be considered more frequently (e.g. Zimbabwe), but in these extreme cases, a local currency should be avoided if possible.

Below are some solutions that should be considered:

Quarterly reviews of allowances and payments made in an affected currency
Consider a split pay approach that would deliver a combined goods and services amount normally spent at home, plus a goods and services differential in the host currency
Communicate with expatriates, to show how their purchasing power is being protected

For assistance in reviewing your company’s global mobility policies and process related to expatriate compensation, please contact SIRVA.