The economy of Venezuela is faced with great challenges – high inflation, plunging oil prices and uncertain politics, given the recent success of the opposition in Parliamentary elections. The official inflation rate of 68.5%, provided by the government since December, 2014, was finally updated to an annual rate of 141.5% as of October, 2015. The International Monetary Fund had predicted about 208%, but recently revised their forecast to 750%! Companies are interrupting production because they cannot obtain raw materials from overseas, and it is increasingly difficult to obtain hard currency.
Despite the high inflation rate and extremely difficult economic conditions, employers have been proceeding cautiously. The Birches Group survey results in October, 2015 indicate annualized market movement of 24.5% compared to October, 2014 data. The adjustments applied for both support and professional staff. We found additional market movement of 11.35% between October, 2015 and January, 2016, from the results of an additional, interim survey update we conducted.
Labor markets move according to supply and demand, not in lockstep with inflation or devaluation. This data indicates that employers in Venezuela are advancing salaries conservatively, in line with what they can afford and what they need to pay in order to retain staff.
During volatile periods, employers often ask if they should simply convert local salaries to hard currency, such as US dollars or Euros. This is generally not a good idea, and in fact, the data confirms that 91% of employers in the survey denominate and pay staff in local currency in Venezuela. However, we do recommend that employers monitor the market frequently and provide salary increases more than once per year during these periods.
For a full explanation of Birches Group recommendations on managing compensation during volatile economic periods, see our recent article about the devaluation in South Sudan. The same principles apply in the case of Venezuela.
Birches Group conducts surveys in Venezuela updated three times a year, and consults with clients on all aspects of compensation management in developing markets. Please contact us for more information.