Article: The cost chaos!

#Compensation Benefits

The cost chaos!

Mercers 2018 Cost of Living Survey rankings demonstrate how increasing cost of living in various parts of the world is affecting organizations in terms of deploying talent and is also impacting the cost of doing business in various cities around the world.
The cost chaos!

Cost of living says a lot about a region. On one hand, it can signal economic prosperity; on the other, it becomes an issue of affordability. For people in general, living comfortably with a stable income and budget is one of the most important things. However, the increasing cost of living not only creates affordability issues for people in general but also for organizations as many of them squander to compete with competitors to pay to their employees. Rising living costs affects the labor and labor markets in many ways.  From deterring lower-income groups from migrating to high living cost areas that results in the decimation of much-needed labor force for growing markets, to pricing out the local workforce, the effects of high living costs are felt in some unusual ways. On top of that, digital disruption, maturing demographics, skills deficits — phenomena like these not only affect the global business ecosystem and the nature of jobs that are crucial for the future of work but also have a trickle-down effect on talent mobility and compensation packages. Along with that, unstable housing markets and fluctuating inflation are impacting the cost of doing business in various cities around the world. 

Amidst all this is the focus of organizations on mobile talent and assessing the cost of expatriate packages for their international assignees. For organizations today, aligning workforce and mobility strategies by ensuring that the right employees are in the right place is more critical than ever as organizations turn their focus on new global business models. With this, compensating employees on international assignments becomes as important as it can be costly. Such findings and more are a part of Mercer’s 2018 Cost of Living Survey which indicates that the C-suite considers improving the ability of moving jobs to people and people to jobs as among their top three priorities that would have the biggest impact on business performance. Issues surrounding global talent mobility have become a central aspect of many organizational growth strategies, including on whom to mobilize, where and what to pay in the context of assessing the cost of expatriate packages for their international assignees. 

According to the survey, Asian cities rule the list of most expensive locations for working abroad as they claim six out of the top 10 spots. In the Worldwide Ranking, Hong Kong takes the first spot, followed by Tokyo, Zurich, Singapore, Seoul, Luanda (Angola), Shanghai, Ndjamena (Chad), Beijing, and Bern (Switzerland) in that order.  Mercer has used New York City as the base city for all comparisons for the rankings in the survey. 

Mumbai continues to be the most expensive city for expatriates and is ranked higher and more expensive than cities like Melbourne, Frankfurt, Buenos Aires, Stockholm, and Atlanta 

The Indian context

The Mercer Cost of Living India report reveals that within India, Mumbai (55) continues to be the most expensive city for expatriates and is ranked higher and more expensive than cities like Melbourne (58), Frankfurt (68), Buenos Aires (76), Stockholm (89) and Atlanta (95) in the world. Mumbai’s jump in ranking is attributed to the continued surge in prices of food, alcohol, and domestic supplies along with the real estate prices that have continued to remain the highest in the world. New Delhi (103), however, has managed to claw its way out of the top 100 categories this year, with a drop in the rankings by four positions. Chennai (144) has dropped the most by nine spots in the list, compared to other Indian cities. Bengaluru (170) has fallen in the cost of living ranking and driven significantly by a relative drop in prices on transportation. Kolkata (182) remains the least expensive among the surveyed Indian cities, though has moved up two spots, led in part due to increase in costs of domestic supplies and home services.

With the surge in the cost of living, wage premiums are becoming the norm. According to a Korn Ferry Salary Surge report, the global supply of skilled labor could fall short of demand by 16 percent by 2030 and the expected talent deficit of 85.2 million workers across 20 economies will make "wage premiums" the norm. While in the Asia Pacific, the salary surge is stipulated to add more than $1 trillion to annual payrolls by 2030, the report puts India in the report's Top 10 biggest wage premiums by economy list in the short-term. The study also states that salaries for highly skilled workers could boom as talent shortages take hold across the Asia Pacific.  

Balancing compensation costs

Mercer's International Policies and Practices Report on India points out that 93 percent of companies in India compensate through a Cost of Living Allowance for their expatriate assignees. This increase in prices of goods in the cities, viewed along with currency exchange rate has a direct impact on the Indian assignee compensation when using a balance sheet approach, making overseas assignment costs sometimes greater and sometimes smaller. “In this scenario, companies are reconsidering how frequently expatriate salaries are reviewed. In balancing assignee cost with assignee satisfaction, some companies prefer to let the assignee retain the benefit of the windfall if applicable”, said Padma Ramanathan, India Practice Leader, Global Mobility at Mercer.

Where a mobile workforce allows organizations to achieve greater efficiency, utilize top talent, and be cost effective with international projects, technology has reduced the need for organizations to have expatriates in high-cost cities as most of the work can be managed by virtual meetings and once while travel.

Volatile markets and fluctuating economic growth in many parts of the world are requiring organizations to assess expatriate remuneration packages carefully. 

Topics: Compensation & Benefits

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