Communicating a Decrease in Cost of Living Allowance

Published 2024-05-13 12:00:08
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Expatriate compensation packages often include a Cost of Living Allowance (COLA) to maintain purchasing power abroad. However, economic factors like inflation and currency fluctuations can necessitate adjustments to COLA. This article explores how to effectively communicate a decrease in COLA to expatriates, while also suggesting strategies to support them during such times.

The Cost of Living Allowance (COLA) is a widely used tool for expatriates. It adjusts for inflation in both the home and host countries, taking into account exchange rates, to ensure employees maintain their purchasing power abroad. Recent global events, including the war in Ukraine and ongoing supply chain disruptions, have triggered significant inflation and currency fluctuations – the likes of which haven't been seen in decades.

Impact on Your COLA

Expatriates from countries experiencing high inflation in 2022-23, like Germany with its 30-year high, are likely to see a significant reduction in their COLA this year. Employers, themselves grappling with rising costs, may be unable to fully compensate for these increases through COLA adjustments.

This creates a challenging situation for both employers and employees facing rising living expenses and heightened uncertainty. Clear and open communication is paramount, especially regarding expat salary components like COLA.

Transparency is Key

Explaining the rationale behind your organisation's COLA policy is crucial. Receiving less money can be disheartening for employees, particularly when everyday costs are already rising. Timely and comprehensive communication is essential to gain employee understanding and support.

While upfront investment in communication may seem time-consuming, a coordinated and structured approach can prevent confusion and discontent among affected expats. Uninformed employees may raise concerns with HR, leading to disruptions within the organisation.

Consequences of Poor Communication

Expat communities are often tightly knit and can quickly become dissatisfied, particularly when their real income (adjusted for inflation) decreases. Addressing this issue proactively by explaining the logic behind any potential COLA reduction and the purpose of COLA adjustments is vital.

Proactive Strategies to Support Expatriates

Beyond clear communication, there are additional steps organisations can take to support expatriates during periods of economic instability. Here are a few suggestions:

  • Review and adjust other benefits packages: Consider bolstering other expat benefits, such as housing allowances or healthcare plans, to help offset the impact of a reduced COLA.
  • Provide financial wellness resources: Offer workshops or access to financial advisors to help employees manage their budgets and navigate rising costs of living.
  • Facilitate communication and community building: Create opportunities for expats to connect and share experiences. This can foster a sense of support and belonging during challenging times.

Considerations for Your Global Mobility Strategy

If you're concerned about how the changing economic landscape may impact your global mobility policy and allowances, seeking expert advice is recommended. Professional relocation service providers like AGS Relocation can assist you in gathering the information needed to make informed decisions that consider both your employees' well-being and your organisation's financial health.

This article has been published with the help of AGS. For over 10 years, AGS has chosen to communicate about its international services and offers. You can find more information and request a free quote with the link below.

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