Employers Grapple with Impact of Weakening Dollar on Global Compensation Programs

Equity-based long-term incentive plans, base salary and global mobility policies are the compensation components most impacted by currency fluctuations, specifically the declining value of the U.S. dollar.

Nearly half (47%) of the multinational companies who responded to a study by Mercer, say the depreciating value of the U.S. dollar has had a moderate to significant impact on their compensation programs.

"Foreign exchange fluctuations can have a substantial impact on compensation programs and policies," said Rebecca Powers, principal at Mercer. "As the war for talent becomes worldwide, specifically for high-performing executives, organizations need a competitive compensation strategy that appropriately responds to shifts in currency for key employees around the globe."

According to Mercer's survey, equity-based long-term incentive plans, base salary and global mobility policies are the compensation components most impacted by currency fluctuations, specifically the declining value of the U.S. dollar.

Significantly, the majority of respondents (70%) do not use U.S. pay levels and dollar parity as a reference when determining pay rates for non-U.S. based jobs. "Too great a focus on U.S. pay levels and dollar parity may result in executive pay that is no longer competitive in the changing global market," said Laurent Papaix, principal at Mercer. "Most companies use local market peer groups for determining pay for non U.S.-based executives."

Of the pay components affected by the depreciating dollar, equity-based long-term incentive plans are impacted the most. Nearly three-quarters of responding organizations (72%) report long-term incentive plans denominated in U.S. shares. Moreover, 86% of long-term incentive plans do not include an adjustment for fluctuations in the value of the U.S. dollar.

Most multinational organizations have formal global mobility policies that include mechanisms for responding to fluctuations in currency. Nearly three-quarters of responding organizations (74%) have formal global mobility policies and the majority of these organizations (70%) have policies with mechanisms to address the depreciating value of the US dollar. In addition, about half of these organizations review their mobility programs annually, while the other half reviews them semi-annually, quarterly or on an as-needed basis.

To address the impact of foreign exchange fluctuations, the majority of responding organizations use cost of living allowance updates, while others review assignment packages when currency shifts exceed certain levels.

"Compensation is changing as mobility evolves with business needs," explained Powers. "For overseas assignments, mobility programs must balance the needs of the employee and employer, and clearly define how the effects of currency shifts will be handled in each situation."

Mercer's study examines the effect of currency changes on compensation programs. It includes responses from more than 60 multinational organizations, the majority of which have headquarters in North America and more than 20,000 employees. To view the study, "Impact of Weakening U.S. Dollar on Compensation in Multinational Companies SnapShot Survey" visit www.imercer.com/snapshot.

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