Addressing the impact of exchange rate fluctuations on cost of living allowances Over the past few weeks we have seen continued volatility in the exchange rate markets. The US dollar (USD) continues to maintain a strong position against a number of the world’s most traded currencies. As explained in an earlier post, when a US inbound assignee is paid in home currency (and the strength of the USD increases relative to that home currency), assignees into the US need more home currency to protect their purchasing power. Assignees outbound from the US into countries whose currencies have weakened against the USD now need less USD. These adjustments are typically achieved by updating the assignee’s cost of living (COL) or goods and services (G&S) index. However, in light of the current situation, we have been speaking with many clients over the past few weeks about what their strategy should be for adjusting cost of living allowances (COLA) in response to this volatility. Some of the approaches we have discussed with our clients include: Off-cycle adjustments. In cases where the next scheduled COLA update may be several months away, some clients are considering an off-cycle COLA update for assignees who have been negatively impacted by the exchange rate fluctuation. Proactive communications. Others are implementing the updated indices (both positive and negative changes) following their normal process and schedule, but are planning to communicate the changes and rationale with clarity before the assignees see the changes in their paychecks. Monitoring and retroactive adjustments. Some are holding to their normal update cycle, but will monitor the impact of the exchange rate over the period leading up to their next update, to determine if some type of retroactive adjustment is warranted to cover the period of COLA loss. An individual assessment would need to be done by organization on which path would work best for them and their assignees based on their population, COLA levels, pay delivery approach, and other factors. If you have questions on assessing your organization, we encourage you to reach out to us. For more insight on talent mobility and COVID-19, view our dedicated page. View additional information on managing cost of living issues in a pandemic.