worldwide erc® would like to thank today’s sponsor
TRANSCRIPT
Worldwide ERC® would like to thank
today’s sponsor:
September 13, 2016
© ECA International 2016Sep-13-16
Managing expatriate allowances when currencies are fluctuating
© ECA International 2016Sep-13-16
WORLDWIDE ERC® WEBINAR
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resource materials contained in this webinar as legal or other
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information in these materials without seeking the services of a
competent legal or other professional.
© ECA International 2016Sep-13-16
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© ECA International 2016Sep-13-16
Today’s Presenters
Michael Witkowski – VP Americas
Sahirah Dixon – Client Relationship Manager
© ECA International 2016Sep-13-16
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Agenda
Latest exchange rate and inflation figures – major movements
Global inflation highlights
Delivery of pay: options and their impact
Methods to protect against exchange rate fluctuations
Using a guaranteed exchange rate
Interim reviews: establishing trigger points
Reconciliation
Questions
Sep-13-16 © ECA International 2016
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About ECA - What we do
Four service pillars:
© ECA International 2016
Software
Assignment
management
system
Database &
calculations
Reporting
Costing
Data
Subscription
Data reports
Calculator
Bureau Service
Consultancy
Policy review
Accommodation
projects
Benchmarking
Salary & Benefit
surveys
Service
Training
Courses
Webinars
Conferences
Sep-13-16
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FX rates and inflation in the news
Sep-13-16 © ECA International 2016
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Brexit – impact on assignees
(15.0%)
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
15.0%
Performance of USD
GBP EUR
Brexit
US dollar
Performed well
Strengthened or remained stable
against majority of currencies
GB pound
Uncertainty surrounding Brexit
vote
130 currencies strengthened by
5% or more vs GBP in 2016
Euro
Steady against the USD.
Not significantly impacted by
Brexit.
Sep-13-16 © ECA International 2016
Keep calm and carry on!
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Global inflation trend
Overall low and decreasing
Regional variation
Current Trend: More countries experiencing inflation above 10% or below 0.5%
© ECA International 2016
0%
2%
4%
6%
8%
10%
12%
14%
16%
Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16
Annual inflation by region
World
Europe
Asia Pacific
North America
Middle East and Africa
Latin America
Central Asia
Sep-13-16
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Interim survey locations
© ECA International 2016
South Sudan
Currency plummeted
• Peg removal
• No longer any need for dual
indices
Biannual price increases of 150%
USD 1 = SSP
September 2015 3.15
December 2015 18.7
March 2016 30
June 2016 39
Venezuela
New exchange rate system
• New DICOM rate allowed to float
• Now only publishing rate most relevant to assignees
Shortages and rampant inflation continue
150
350
550
750
950
1150
USD 1 = VEF…
Simadi/DICOM Black market
Sep-13-16
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Interim survey locations
© ECA International 2016
Angola
Affected greatly by oil price drop
Kwanza weakened significantly – at all time low against dollar
Biannual price increases measured at nearly 20%
Rising inbound indices
Mozambique
Low pricing in commodities market
Metical lost over 20% against major currencies
between March and June
Rising inflation – biannual price increases
measured at 10%
Lower inbound indices
115
125
135
145
155
165
175
US
D 1
= A
OA
…
Movement vs USD35
40
45
50
55
60
65
US
D 1
= M
ZN
…
Movement vs USD
Sep-13-16
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Why do exchange rate movements matter?
Assignees may be adversely affected
COLA no longer protecting purchasing power
To remain competitive in the market
Potential cost increases to the company
To keep costs down
Sep-13-16 © ECA International 2016
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Question?
What would you consider a big enough exchange rate movement to
trigger a review?
A. 5%
B. 10%
C. 15%
D. 20%
Sep-13-16 © ECA International 2016
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Unscheduled reviews
© ECA International 2016
0% 20% 40% 60% 80%
Home countryinflation
New tax rules
Host countryinflation
Exchange ratechanges
What triggers unscheduled reviews?
Host country based/ 'local plus' approach
Home country based build-up approach
13%
57%
14%
16%
Managing exchange rates
Split pay
Specified change triggers review
Monthly spot or guaranteedexchange rate
Price inflation trigger:10% to 15%
per annum
Exchange rate trigger: 10% or 5%
(over 3 to 6 months period)
Sep-13-16
Source: Expatriate Salary Management Survey 2015
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Delivery options
Managing exchange rate changes: which element do you need to
protect?
© ECA International 2016
100% of assignment
salary paid in home
currency
Protect remittances to
host country
100% of assignment
salary paid in host
currency
Protect remittances to
home country
Split pay
delivery
Both
elements
are
protected
Pay in a third
country
currency
Fluctuations
between third
and home/host
country
currencies
Sep-13-16
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Currency of delivery
© ECA International 2016
40.2%
19.5%
4.6%
2.4%
15.8%51.2%
39.4%26.8%
Home country based approach Host country based approach
All in home country currency
All in host country currency
In third country currency
Package split between home and host country elements
Source: Expatriate Salary Management Survey 2015
Sep-13-16
Currency of delivery vs policy approach
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Currency of delivery – pay elements
© ECA International 2016
Home tax and
social security
Spendable income
Housing and savings
Net
Home
Salary
Notional home salary
Host package
Host tax and
home social security
Assignment benefits:
Accommodation
Education
etc.
Assignment allowance
Location allowance
Spendable income
COLA
Housing and savings Net
Assignment
Salary
Home related
component
Host related
component
Sep-13-16
Currency of delivery by assignment pay elements
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Currency of delivery (based on March 2016 Fx rate)
Sep-13-16 © ECA International 2016
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Delivery via split pay (using Sept 5th Exchange Rate)
Sep-13-16 © ECA International 2016
March 2016 USD 1 = GBP 0.7068
USD GBP
September 2016 USD 1 = GBP 0.7526USD GBP
September 2015 Fx rate: USD 1 = GBP 0.647716 %
change
|
Delivery in home country currency (using Sept 5th
Exchange Rate)
Sep-13-16 © ECA International 2016
March 2016 USD 1 = GBP 0.7068 USD GBP
September 2016 USD 1 = GBP 0.7526
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Delivery in host country currency (using Sept 5th
Exchange Rate)
Sep-13-16 © ECA International 2016
March 2016 USD 1 = GBP 0.7068 USD GBP
September 2016 USD 1 = GBP 0.7526 USD GBP
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What rates are used in the calculation?
© ECA International 2016
40%
53%
7%
Prevailing exchange rate at time of calculation
Company/organisation-approved rate
Any other option
Source: Expatriate Salary Management Survey 2015
Sep-13-16
Most common exchange rate types used by organizations in balance
sheet calculations
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Methods for protecting against FX rate movements
Guaranteed exchange rate
Low-maintenance version of split-pay
When employee makes currency swap, company uses a fixed exchange
rate
Alternatively, the amount being delivered changes on a monthly basis to
deliver what is needed
Interim reviews
Company sets a “trigger point”
The salary is re-calculated if the trigger is breached
Base salary remains unchanged until normal salary review
Periodic reconciliation
Employer reconciles periodically (every six months or at the end of the year)
Employer will generally allow employee to benefit when movement in his/her
favor
© ECA International 2016Sep-13-16
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Exchange rates – summary
No universal solution! Yours will be unique to:
Your organisation
The countries you have presence in
Your payroll capabilities
© ECA International 2016Sep-13-16
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ECA Insights
Sep-13-16 © ECA International 2016
It’s a volatile, quick-changing world: keep an eye on exchange rates
and inflation news by signing up to our blog updates.
www.eca-international.com
|
Questions & Answers
Sep-13-16 © ECA International 2016