European Cost-of-Living Allowances Alive and Kicking Post 'Euro' Day

London (23 January, 2002)-It was Mark Twain, of course, who joked that "rumours of my death are greatly exaggerated" when it was wrongly reported that he had died. Despite predictions that the introduction of the euro would quickly 'kill off' the need for cost of living payments to expatriates on intra-euro zone transfers it is now apparent that this is not likely to happen anytime soon.

ORC's newly published survey on The Implications of the EURO for Expatriate Policies and Practices in Europe is the third in a series, which began in 1998. The 2001 survey attracted 153 participants with operations worldwide. The survey found that 97 percent of companies will continue cost of living allowance (COLA) payments for intra-euro zone transfers, an increase of eight percent over the 1998 survey.

It is also clear that companies are taking a 'wait and see' approach over whether any fundamental changes will be required to their expatriate programmes. There has been a marked decline in the optimism over the expected benefits the euro will bring to expatriate administration. Only 14 percent of companies believe the euro will result in cost savings compared to 36 percent in 1998. Similarly fewer companies now expect that the euro will result in simplified expatriate administration. Currently 33% believe the euro will simplify the process compared to 52% in 1998 and 42% in 1999.

It is clear that differences in tax and social security remain major obstacles to developing a ''one-size fits all' European wide expatriate reward strategy. Participants believe it will be at least 10 years before harmonisation could become a reality. Only 20% of companies believe that the euro will bring about convergence of national pay levels and only 16% believe that benefits will converge.

Nevertheless, implementation of the euro for European transfers seems to have gone smoothly. Sixty-four percent of companies reported that they have experienced no significant problems with their strategy for the introduction of the euro and only eight companies reported they started the process too late or did not undertake sufficient planning. In the longer-term participants expect to experience benefits from increased transparency of relative employment and cost-of-living costs across Europe.

So what are the trends for the future? ORC believes (and the survey supports this view) that while cost of living payments will continue, we are likely to see greater use of region specific policies for Europe, the use of assignment incentives will decrease, and organisations will increasingly seek to control the cost of intra-European transfers.

For further information please contact Julian Pollard, Organization Resources Counselors, Inc, 127/131 Sloane Street, London SW1X 9BA, Telephone: +44 (0)20 7591 5600, julian.pollard@orc-lon.co.uk, http://www.orcinc.com.