Question

Discuss the purchasing power exchange rate and indicate how it is helpful to compensation professionals whose work spans multiple countries.

ch13 & 14 strategic compensation 9th ed Martocchio

Answer 1

Purchaing Power Exchange Rate is a hypothetical value that tells you that for the same good how much $ you need to pay in different countries across the globe. Therefore it indicates the exchange rate between two countries currency is commensurate with the local purchasing power and exchange rate.

E.g. What you get in by 1USD in US currency if you travel to India you may have to spend 20 INR in Indian Currency. Therefore with the same level of living standard you will need more or less salary depending on the nation's Purchasing Power Parity wherein you are deputed.

The index is made every year based on the economic condition and currency value of the particular nation with respect to USD.

This index helps in identifying the value of remuneration to maintain the same level of living standard in different countries.

This index helps in calculating the right wages for the professionals across the globe. Compensation calculated using the index is justified with the professionals as they are not making any compromise in the living standard.