Here is an e mail exchange conducted with a lady from a Yahoo international HR Group.
Has anyone reading this any ideas or alternatives? Please contact us – see below.
We are currently facing an issue, where we would like to seek your opinion/advice:
Background: At the start of an assignment to Russia, the base salary of our German expats will be converted into the host country currency using a six months average exchange rate (reference value) according to mercer. By the end of each year we compare the yearly average exchange rate against the reference value. If there is a disadvantage for the expat, a gradual compensation payment is made only for the first three years. After that no exchange rate compensation will be given.
Problem: During the last 6 months the Euro grew stronger and stronger against the Russian Ruble. The prognoses even tend to develop to 1 EUR = 60 RUR.
Since a lot of our expats do not receive an exchange rate compensation anymore (>3 years in Russia), they face severe problems and would like to receive a compensation.
Question 1: Now the question arose how that compensation could possibly look like. Since we do not have a worst-case-scenario outlined in our Global Mobility Policy, I was wondering, if you face the same situation and what your suggestion would be.
Question 2: A suggestion from the expat’s side was to take the EUR based salary from the home country and convert it into Russian Ruble every month with the average exchange rate. The only restriction I see here is that you do not have a mechanism which protects the expats once the exchange rate drops to 1EUR = 39 RUR. Do you have an idea, if this suggestion can be taken further WITH mechanisms to protect against currency depreciation?
I highly appreciate your feedback and thank you in advance. Kind regards…
RESPONSE by JOHN TINSLEY
There is not a lot wrong with your present system. Expats will always complain about exchange rates if they lose money but will be “too busy to notice” if they gain money by an exchange rate change.
When I was an HR Manager we used to follow broadly the same policy as you.
We would fix an exchange rate – we just used the mid market rate from Reuters on the last Friday of the year- no need to pay someone to calculate averages.
On the last Friday of the following year we would look at the monthly exchange rates
If the employee had “lost” money we could compensate him or her- no 3 year time limits
If the employee gained money we would review it, remember it, but probably not try to take the money back
BUT this review could also be triggered during any calendar year if the exchange rate disadvantaged the employee by 5% since the previous fix.
Please Contact Compandben or leave a comment below if you have any queries, ideas or alternative suggestions.
You can also visit Compandben Main Website – Russia Payroll & PEO Services