Global Mobility: Inflation is here, Higher Interest Rates are Coming
With the worst of the pandemic easing around the increasingly vaccinated world, many countries are now experiencing rising inflation rates, including Canada. The Bank of Canada has signalled that interest-rate increases will likely start sometime in early 2022 to help bring inflation back to the 2% target rate near the end the year. Though the action on interest rates will benefit the economy in the longer run, we will continue to experience higher costs in the shorter term, and this will impact mobility programs.
What we are dealing with now are higher inflation rates, driven in part by manufacturing and supply chain problems, and higher energy costs. This affects prices generally, but more specifically in terms of mobility programs, this means increased:
– Cost of living or goods and services allowances for certain destinations.
– Housing prices and activity as well as housing inventory costs for those with guaranteed home sale plans (GHSP).
– Prices for air travel, hotels, temporary accommodation, and rental housing.
– Cost of moving and storage of household goods, which we touched on in our last blog.
The eventual increase in interest rates will result in:
– Higher cost of borrowing, which could cause difficulties for those renewing mortgages and who overspent on their home during the period of extremely low rates.
– A likely slowdown in housing activity, which will impact programs offering equity protection and GHSP.
– Hopefully, combined with a more stable economy, some relief in the other areas hit by higher than usual inflation.
These increased costs will affect each organization differently, depending on the type of mobility program they have adopted. Those with a traditional fixed benefit design will, of course, absorb the entirety of the increase, unless it is able to make counterbalancing changes without negatively affecting acceptance rates. Not an easy task but possible.
At the other end of the design spectrum, the increasingly popular lump-sum programs, if unchanged, will pass the additional cost of moving on to the transferee. Acceptance rates may suffer unless the lump sums are enriched to keep up with rising costs.
Sitting somewhere in the middle section of the mobility design spectrum are Core/Flex programs for which the impact of higher inflation and increasing interest rates will likely be felt both by the organizations and the transferee though by how much will depend on the distribution of the benefits provided as Core versus the choices offered under the Flex portion. A recalibration and some design changes may ease the financial strain on both parties, as well as reduce the risk of increased candidate hesitancy.
Talent attraction has been a difficult issue for employers and, regardless of the mobility program design, any additional burden placed on a transferring employee will only exacerbate the problem.
Inflation is already impacting mobility programs and we are told interest rates will rise sooner than previously thought. If organizations haven’t already started planning for their impact on global mobility initiatives, it’s certainly time to start.
The team at Ward O’Farrell Consultants is ready to lend a hand in the process of reviewing, evaluating, and recommending any necessary change required to ensure your mobility program continues to attract top professionals to your organization. Please reach out to:
Linda Ward O’Farrell 514-697-3857 or firstname.lastname@example.org
John O’Brien 905-474-4080 or email@example.com