Companies Cut Down Staff Dollar Costs as Naira Hits N516/$
As the receding Nigerian economy continues to take toll on the revenues of companies, they are finding new ways of reducing cost by cutting down staff remunerations and expenses. More companies are monetising benefits and paying in naira to avert the exchange rate challenges.
A report by KPMG noted that to ensure sustainability, companies are taking a critical look at their employee benefits structure to identify areas that unduly expose them to escalating costs, saying remuneration is one of the areas businesses are exploring to reduce cost.
The value of the naira at the parallel market had crossed the N500 mark last week selling at N516 at the end of the week, while the currency remained stable at N305 and N400 at the interbank and bureau de change end of the foreign exchange market.
According to the KPMG report, companies are monetising and limiting provision for overseas air ticket as well as cutting down on expatriate wage bill to reduce the impact of the expensive foreign exchange on their costs.
The report said companies are seeking to reduce the cost of providing overseas air ticket and per diem for holiday travel/rest and recuperation, typically provided to senior and executive management staff.
“With the escalating cost of air tickets, companies are moving away from providing the actual tickets to limiting their exposure to the current highly unfavourable exchange rate regime. Companies are monetising and providing naira cash limits for the tickets, reducing the class of ticket provided, reducing the number of tickets or the frequency of such holiday trips. In the same vein, companies are providing cash limits in naira, instead of dollar-based per diem or reducing the per diem amount altogether.”
Also as a way to cut down on their foreign exchange bills, the KPMG report said companies are hiring locals into expatriate roles and paying in naira. This helps eliminate exposure to the high exchange rate and challenges in sourcing scarce dollars.
However, companies that earn revenue in foreign currency appear better off in terms of affordability and sustainability. “We are aware that some of these companies are now paying a portion of their employees’ salaries in US dollar. The portion that is payable in dollar is converted at the prevailing interbank rate on the day of payment. The underlying driver of this initiative is to provide some form of palliative for the employees that have some financial obligations in foreign currency.”
In cutting down costs, KPMG said companies are now monetising cars and providing cash limits, allowing them to reduce the cost of acquisition eliminate the associated administrative burden/cost of managing them. Other cost-saving measures observed include provision of perceived lower brands and extension of the replacement period.
“However, for executives, most companies still continue to provide status cars. A key question is whether companies will revert to the old policy, when the economy bounces back. Or could this be a permanent change in the status car culture and practice?” the report stated.
Nigeria has a culture that is heavy on benefits and status due to inadequate infrastructure. It is, therefore, typical for Manager level roles and above to receive status cars, with related perks such as comprehensive insurance, fueling, maintenance, driver, etc. In fact, some new hires will not accept offers that exclude the provision of status cars.
