Covid-19: should you increase location allowances?

In light of the ongoing pandemic, global mobility teams and their assignees may think that location allowances should be increased. However, there are some important questions to consider first.

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ECA’s Location Ratings team is constantly monitoring events around the world to ensure we are on top of the issues affecting international assignees. When we first saw reports of a new SARS-like illness affecting the population of Wuhan in early 2020 we intended to follow its progress closely with a view to potentially increasing health scores for Wuhan, and other neighbouring cities if necessary, in the upcoming Location Ratings survey. Few predicted that just three months later a third of the world’s population would be under lockdown in a bid to halt the spread of the virus, now identified as a coronavirus (SARS-CoV-2). After all, we’d seen medical emergencies in the recent past such as SARS in 2003 and H1N1 (“Swine flu”) in 2009, but these did not ultimately gain a significantly global foothold. The 2014 Ebola outbreak had an impact on location allowances, but this was restricted to a small number of countries in West Africa.

As we are all discovering, the current coronavirus pandemic is on a completely different level. Its highly infectious nature has already sadly resulted in over 1.4 million cases around the world, and over 80,000 deaths at the time of writing. Location allowances are paid in recognition of the difficulties assignees face in their host location, so when disaster strikes, both global mobility teams and the assignees they look after often think they should be increased.

However, there are some important questions to consider. Will restrictions and lockdown conditions be sustained beyond the short term? ECA’s Location Ratings take the long-term view and knee-jerk reactions to any event must be avoided. As we have seen around the world, events are moving at a frantic speed and any reassessment made at this time could be out of date within a matter of hours. Constantly changing location allowances would also place an administrative burden on already stretched global mobility teams.

Regardless of the length of disruption, we also need to ask if location allowances are necessarily the most appropriate way to compensate for coronavirus-related disruption and lockdown conditions. After all, local staff are going to be suffering the same new hardships as international assignees. It does not seem fair to increase location allowances for expatriates when local staff in the same position will receive no benefit. And what use is extra money going to be anyway, with fewer places to spend it and fewer items to spend it on? Indeed, our surveys have shown that companies do not typically increase location allowances in such crises (only 4% of companies do so, while 5% will introduce a new, exceptional allowance). For these reasons ECA will not be increasing our recommended location allowances at this point, maintaining our long-term approach.

Still, we are aware that expatriates living with lockdowns and the associated restrictions could reasonably point to a number of factors in ECA’s location ratings scoring methodology where living conditions have deteriorated as a result of new restrictions. Examples include:

Health – perhaps the most obviously affected section. Health services even in well-developed countries such as Italy have been overwhelmed and this appears to be the fate of services elsewhere over the coming weeks. This has an impact on the ability to treat patients for non-coronavirus related conditions too. Of course, risks to the health of assignees have also been elevated in many countries.   

Goods and services – a familiar sight from around the world has been pictures of empty supermarket shelves as the public panics at the thought of shortages. In many cases, this has led to widespread stockpiling. Hopefully, as lockdown becomes the new normal, the availability of items which have been scarce in recent weeks will slowly begin to stabilise.   

Isolation – part of ECA’s External Isolation scoring looks at the availability of international flight connections. Certainly, these have been impacted in many locations; indeed, in some cases they no longer exist. The Internal Isolation section assesses public transport connections (many of which have been shut down) as well as communications networks. For example, if an assignee is based in a location where internet or mobile services are poor this will make keeping in contact with friends and relatives back home more difficult, further increasing feelings of isolation. Broadband networks are also under increasing strain as large sections of the population log in and work from home. 

Recreation – leisure facilities have taken a significant hit with the closure of gyms, cinemas, sports venues, restaurants and bars. The availability of suitable streaming and e-reading facilities will be more important than ever, as will green/open spaces where outdoor exercise is still permitted (while keeping an appropriate social-distance of course). 

Socio-Political Tensions – part of this score looks at freedom of movement, an aspect of life taken for granted in most of the developed world but now widely curtailed with curfew conditions and restricted movement commonly in place. Also considered in this section is whether civil unrest is prominent, an issue we repeatedly saw in 2019. So far, people are largely adhering to lockdown restrictions but if these continue beyond a few weeks we may see populations around an already angry world start to revolt. A breakdown in law and order in just one place could spread elsewhere as quickly as the virus itself, with potentially even more devastating consequences.

Many of the issues described above will sound all too familiar to many of us. It remains to be seen how long they will last, but if they are significantly prolonged then allowances may well be affected in the long run. However, could some of these deteriorations actually be cancelled out by improvements in other categories? It seems counter-intuitive, but there could be a few silver linings in this grim situation. For example, NASA satellite photographs showed a sharp decline in air pollution levels in China during the shutdown. With reduced industrial activity and lower traffic levels in many places we are likely to see this trend repeated elsewhere. 

The personal security environment will also have improved - expatriates confined to homes are naturally less likely to be victims of crime. With populations being kept off the streets, and police and security forces on patrol, it is likely that criminal activity will have dropped in many places. 

However, the lifting of lockdowns and restrictions in much of the world does not appear to be imminent so it is hard to take too much comfort. Many experts predict that an effective vaccine is still at least a year away. True, parts of Asia are re-opening and it will be interesting to see if the optimistic reports emanating from there prove to be accurate. The system of tracking and widespread testing in Korea Republic, for example, appears to have had some success and offers hope that disruption could be relatively short-lived. Whatever the events and developments over the coming weeks and months, ECA will continue to watch closely, building up a clearer picture of the world’s prognosis and the long-term impact on international assignees and location allowances.

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As ever, we remain available to support our clients during the current situation. Please do not hesitate to contact us or your ECA point of contact directly if you would like to discuss any of the above in further detail, or seek our advice regarding how to manage your mobile employees during the pandemic. 

ECA's Location Ratings are delivered through ECA's Location Allowance Calculator which offers a transparent and detailed system for calculating location allowances for expatriates relocating to a new country.

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