Managing Compensation in Ukraine amidst Economic Downturn and Political Upheaval

Managing Compensation in Ukraine amidst Economic Downturn and Political Upheaval

Since 2014, tensions in Ukraine have reached a boiling point.  Armed conflict in Eastern Ukraine has caused the economy to tumble.  Recent reports show annual GDP growth at -17.6%, and since last June, devaluation of the Ukrainian Hryvnia against the US dollar has been about 78%.  With unemployment reported at 9.7%, and inflation a whopping 58.4% (as of May, 2015), the nation is in an economic crisis.

In 2014, the Birches Group compensation and benefits survey reported significant market movement – 45.2% for professionals and 37.3% for support staff positions.  Also in 2014, inflation was reported at an annual rate of almost 25%, and exchange rate against the US dollar moved from 8.05 to 11.78.

Ukraine Market Movement

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Projected market movement for salaries in 2015, based on our proprietary Trends™ methodology, indicate more modest 20% growth for professionals and 13% for support staff.  But during turbulent times, projections are often less reliable.  Inflation is projected at 39.6% for the year, and the exchange rate is projected to top out at 25.79.

So how should employers plan for compensation movement in 2015?  Here are some tips:

  • Establish a policy (hopefully at the corporate level) outlining under what circumstances the company will act to take steps outside of their normal compensation process (we call these “special measures”) to assist employees immediately.
  • Monitor the market on a regular basis and note what other relevant employers are doing. We find, in general, that employers often respond to a crisis more slowly than the pace in the general. economy.  This is mainly because budgets and profit margins must be maintained during the crisis.  Remember, too, that salaries are determined by supply and demand in the labor market, which moves quite independently from inflation.  A good way to monitor ongoing changes is to become a subscriber to the Birches Group survey.  We update the results three times a year, in April, July and October, so you always have fresh data available.
  • Consider multiple increases. Many companies are reportedly granted at least two increases during the year rather than just one.  This allows employers to track the market and remain competitive without getting too far ahead.
  • Communicate your plan. Employees do not realistically expect the company will solve all of their personal issues as a result of the worsening economic situation. But during turbulent times, they want to know what to expect and what they can count on from their employer.

For assistance with managing your compensation program in Ukraine, or elsewhere in the developing world, please get in touch with us.

posted on June 10, 2015 / Blog, Europe Middle East, Featured, Featured Surveys