Companies with a global presence are the norm, not the exception these days. So it makes sense that the way employees are recognized and rewarded for positive contributions in the workplace meets societal and monetary norms, no matter the employee’s country. Engagement and recognition vehicles used must have financial value for everyone—a consistent sense of purchasing power.
Understanding purchasing power and how it affects reward and recognition options for a global audience is paramount to a well-planned strategy. Purchasing power is simply how much our currency can be stretched when purchasing goods or services—the value of a currency expressed in terms of the amount of goods or services one unit of money can buy. But purchasing power fluctuates based on many factors—inflation, deflation and exchange rates, to name a few.
Purchasing Power—the Ups and Downs
Changes in purchasing power are directly tied to inflation or deflation. With inflation, a dollar purchases fewer goods and services, because the prices of those goods and services are inflated. The reverse is true with deflation.
All of this has to be considered when determining award offerings for a global audience. Further, purchasing power impacts program budgets and participant motivation—they ultimately need to decide if the award offered is worth them changing their behavior.
Too often, individuals in charge of award strategies rely solely on the spot exchange rate as a pricing tactic. Why won’t that work?
- Spot exchange rates are constantly in flux as traders buy and sell currencies in the open market.
- Exchange rates just tell us how much of a foreign currency our money can be converted for. It doesn’t tell us whether our purchasing power remains intact after that conversion.
- Even if two countries share the same currency, that doesn’t mean buying power is equal.
So…Now What? Parity.
Parity levels the playing field. It’s defined as the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country. Say a U.S. company with operations in Brazil gives top performers points to purchase awards in a catalog. The points have to have the same purchasing power in that catalog, regardless of country or culture.
Creating pricing indexes for tangible awards involves extensive research into a country’s standard of living, pricing of goods and services, and other economic factors. That’s why partnering with an outside recognition and reward provider makes sense. Indexes are set, monitored and adjusted throughout your program. Parity levels the playing field for your valued employees. Because, no matter where they reside, they’ve earned a fair monetary value for their effort.