The devalued dollar is hard on everyone-especially on those businesses with employees on international assignment. Many companies are too late in realizing the impact that the dollar decline can have on their overall mobility program budget, according to a recent study.1 They are finding that the cost of their international assignment programs well exceeds their original budgets, which can be extremely problematic-especially in the midst of an economic downturn when every dollar counts.
The reason is simple. As US companies prepare estimated mobility expense calculations in US currency a year or so in advance, they end up falling victim to the host country's increasing exchange rate as the value of the dollar continues to spiral downward. Not to mention that for US employees working abroad, coping with declining purchasing power under existing compensation packages can be an additional challenge that companies may need to address on behalf of their mobile employees.
Historically, employers have reviewed allowances annually or semi-annually to reduce administration costs. However, in an unpredictable economic climate where the dollar is devalued against some foreign currencies, many employers are now reviewing allowances on a quarterly or monthly basis.
In addition, employers are making changes to their expatriate employee compensation programs. For example, companies that provide a 100 percent headquarters-based package may choose to pay a part of employees' compensation in local currency rather than in US dollars. Under this plan, the company bears the exchange cost risks. Other companies are directly paying host-country expenses, such as housing or tuition.
Understandably, as the dollar declines, employers are increasingly worried about accurate budgeting and maintaining competitive compensation for their overseas employees. However, companies that stress flexibility and build in more frequent checkpoints with regard to program budgeting for international assignees are likely to be better prepared.