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The Employment Crisis Also Impacts on Executives
Undoubtedly, executives are among those who are paying the price for the crisis on employment that Argentina is undergoing: reduction in managerial structures; more functions in the hands of fewer directors; cutback or elimination of annual bonuses; reduction or cancellation of stock options plans; decrease in special benefits; and worst of all, pay rises well below inflation rate for salaries in Argentina pesos, and a cut in the amount of salaries in US dollars.
Published in El Cronista on October 19, 2018
We start from the premise that all forecasts point to an inflation rate well above 40%, even reaching 45%.
Surveys carried out by the most qualified consulting firms up to August show that pay rises for 2018 for middle management average 24% with a ceiling of 28% and a 19% floor. Historically, these data have served as a point of reference, knowing full well that there is a margin of error that sometimes may be significant. The main reason to take precautions is the reliability of the information processed, which is often biased depending on the company, according to the means and limitations of each one of them to provide confidential information.
Recent surveys indicate that the 24% average jumped to 28% – 30% with a very low floor around 20% but with a ceiling reaching 34% – 35%. These changes derive from a strikingly new premise for this year: two increases for the whole year, usually in April and September or October, and a third exceptional raise granted by European and Asian companies in particular.
Both bonuses and stock options plans have been adversely hit by the local and regional crisis. On the one hand, the targets for this year have not been achieved, especially as a result of the effects of the huge currency devaluation that disrupted any strategy because of unpredictability. On the other, as to stock options, companies have been holding back on or even putting off new launches.
The reduction in top management structures also affects the region. Marketing, administration, finance and operations are the core sectors, together with HR, that are in charge of reorganization processes, mergers and restructuring. The other areas report to these four sectors in such a way that they have lost their status and autonomy. In addition, as a result of these changes, the highest salaries have been affected by an increase in functions and tasks. The same happens when the number-one executive of a company needs to be replaced. In general, successors are offered a total compensation 20% – 30% below the compensation their predecessor earned.
In relation to salaries in US dollars, which are the exception rather than the rule, companies have established amounts in Argentine pesos below the official exchange rate at Banco Nación, which ultimately means a partial reduction.
The reduction in corporate structures is not proportional to the reduction in top management positions. As a matter of fact, the payback period is long, but the daily saving increases the budget and lightens the burden of organizations, where everything is resolved through proceedings and very few issues depend on the willingness or discretion of the Number One.
Macri’s administration has not been positive for corporate top management positions, with a balanced 2016, a negative 2017 and a very negative 2018. Argentina has gone from a very desirable destination at the time of the Convertibility plan to an uncertain place undergoing a degradation process in the last ten years.
The forecasts conducted by the most well-known consulting firms predict sustained inflation with major recession (stagflation) without any signs of economic reactivation or attractive scenarios for investment. For executives misery continues in the hope of a better future that is not too close.
By Julian A. de Diego
Director of the postgraduate course on Human Resources at the School of Business at UCA.