I was born and raised in the USA but have lived in Argentina for most of my adult life. Therefore, I’ve lived through various staggering and complicated financial economic crises. This has given me certain agility in understanding inflation and how it impacts pockets.
Anyone working in an inflationary market knows these basic facts:
- Your salary looses purchasing power almost instantly.
- Buy as much as possible in installments (even a toaster).
- Find alternative currencies to invest in as soon as you get paid.
- Pay all your debts in time because late payments have terrible interest rates that are impossible to digest.
- If you want to buy something, do it right away since the price may double from one day to the next.
- When inflation is very high some goods go off the market since sellers don’t know how much to charge for them.
- This list could go on and on….
I talk to many CEOs in my line of work and one of the biggest challenges they have living in Argentina has been, over the years, explaining to headquarters among other things, that compensation needs to be revised many times a year due to inflation.
In a typical economy, compensation is reviewed once a year and normally performance is the key aspect and driver in a salary increase. But, in an inflationary situation compensation needs to be reviewed periodically (maybe even every two months). Now, why is this? Because workers’ purchasing power becomes much lower as months go by. And this has a negative impact in that collaborators’ personal economy and impacts on how he / she gets through life and continues to pay day to day bills. And this affects their families.
The other crucial situation is when companies set out to hire talent. One of the first questions candidates ask headhunters is how often salaries are reviewed and increased.
The problem becomes much more visible when candidates compare opportunities between Argentine companies and multinational companies. Argentine companies sometimes become more attractive in these settings because their headquarters are local and much more flexible and adaptable to local needs.
So, the tip here is that multinational corporations need to start looking at inflationary economies totally differently than they do the rest of the world. And adopt different policies depending on regions and complexity, etc. They need to listen to the leaders in these regions with an open mind to try and partner up, rather than stand back and say “company policy ….”. So much time is spent and lost by Argentine CEOs in trying to explain the local market that they literally say “it’s exhausting, they just don’t understand us”. Interacting with Headquarters on this matter has become the number one headache. Salary increase doesn’t affect P&L since the prices of the goods & services sold do follow inflation, almost instantly.
The second headache is that top talent is lost and very difficult to replace. A vicious circle that could end if someone would just stop and listen.
By Sandra Olive – Managing Partner of Executive Search