Egypt and Argentina have similar economic structures. Both countries have dollar-dependent, diverse economies, and they are net importers with young, increasingly demanding workforces. The difference is in how long their governments have dealt with rampant inflation.
Central Bank data shows Egypt’s annualized inflation rate went into double-digit territory in March 2022, reaching 30.6% by April 2023. Argentina’s inflation rate crossed 10% at the start of 2015, reaching 104.3% in March 2023.
Triple-digit inflation rates don’t just increase prices, they push top talent to leave their employers, if not the country, in search of higher incomes. In an October 2022 tweet translated by Bloomberg Linea, former Argentine president Mauricio Macri wrote, “They are frustrated at not being able to develop their lives here, while in other countries jobs, studies, housing, credit and a future await them.”
To curb that exodus, a May 2019 Radford Data and Analytics report found Argentinian companies have created internal “inflationary programs [that] respond to the high level of inflation and its unpredictability.”
Egyptian employers and HR departments could face a similar situation if the government cannot contain inflation. In 2018, the Egyptian Center for Economic Studies found that “employees with higher wages … will witness higher levels of job satisfaction, and accordingly firms will witness less turnover.” To retain the most valuable workers, local companies may have to develop their own “inflationary programs” fast.
Step one: Salary
Argentinian HR consultancy firms stress that raising salaries is the first step to retaining employees in a high-inflation environment. However, increasing it by a predetermined annual percentage may not be enough.
According to research by Willis Towers Watson Public Limited Co. (WTWco), an insurance provider, companies need to review salary budgets regularly. “Because of the variation between Argentina’s projected inflation as compared to real inflation, many organizations review salary budgets multiple times each year.”
Flexibility and resilience are essential. “HR and compensation executives in Argentina have been forced to monitor the impact of unexpected changes on salaries permanently,” WTWco’s research noted. They “must be prepared to change compensation decisions several times a year, rather than annually.” A WTWco survey showed “more than 60% of organizations granted three to five annual adjustments from 2014 to 2019” rather than the customary two.
That survey showed that “companies started the year with an approved [salary bump] of 38% to 40%, but ended up with an average salary adjustment of 47.5%.” It was a similar situation a year earlier when Argentinian companies expected their salary budgets to increase 30% to 34% but ended up at 37.4%.
Those adjustments and raises are regulated. Argentina’s Committee for Minimum Wages includes government representatives, employers and employees. It stipulates that “every year, employers with more than 300 employers must submit a social balance report” that contains information about wages and benefits, among other financial information.
GoGlobal, an international hiring company, said in a blog that companies operating from Argentina that can’t adjust salaries several times a year give employees “inflation-adjusted” bulk payments “three to four times a year” as bonuses.
Velocity Global, a business consultancy, said in a May 2019 blog that those outlays could be classified under “retention bonus” or “performance bonus.” Employers also awarded their most valuable employees shares in the company.
Decision makers also offered top talent “additional benefits like the use of a company car, a company-provided cell phone, meal allowances or school accommodation.”
In dollars, not pesos
One significant weakness in Argentina’s economy is that the local currency, the peso, “revolves around the American dollar and how one gets one’s hand on it,” GIS, a think tank, noted in a November white paper. “Citizens have always sought refuge in United States dollar assets as a defense mechanism against instability.”
Recently, the peso’s value has become so volatile that “media report the gap between the official dollar and black market rate daily, like the weather,” GIS said. Making matters worse is that “dollar purchases have been restricted to such an extent that almost no one can [buy the greenback] at the official exchange rate.”
INS Global, another think tank, said international firms operating in Argentina have been trying to pay top talent and executives in dollars, circumventing local labor laws. “Some employers … compensate employees in an overseas account … in a stable market … from which the employee transfers only the amount [they need] at the prevailing market rate.”
The other solution INS Global highlights is that Argentine nationals sign agreements to become “independent contractors for [the] international business to avoid being paid in the volatile currency.”
The third solution Argentina-based companies use is “payroll outsourcing” to a firm operating in a country with a stable currency. They pay Argentinian employees in pesos based on the prevailing exchange rate. The employer also could choose to index the peso against the dollar. GoGlobal said those two solutions “keep both the worker and the employer happy and in compliance.”
New mindsets, strategies
Ignacio de Maroc, CEO of BariesDev, an Argentinian ICT company, stressed that local companies, particularly in the youthful, high-skill-centric ICT sector, find it more challenging to retain top talent than international counterparts. “One of the ways we dealt with [that] problem was by expanding to different countries,” he told Nearshores America, a news portal, in March 2018. The idea is not to be “tied exclusively to one economy.”
The other approach is ensuring “transparency and visibility about what will happen [to salaries] in the near future,” Matt Kendal, founder and managing director of Cognitive Copy, a consultancy, wrote in Nearshore Americas in March 2018. “This approach reduces the anxiety that comes with the fear of no salary bumps.”
Lastly, tackling rampant inflation requires quick decisions. “Not many companies [in Argentina] adapted … fast enough, so many … just started switching jobs,” noted de Marco. “Once a tendency like that starts, it becomes a rule of thumb for the industry and not an exception. [As a result] everyone has to work much harder to keep attrition low.”