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Free fall

Expats paid in dollars watch their salaries drop

By Curtis M. Wong
Staff Writer, The Prague Post
November 28th, 2007 issue

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"In the early days, a dollar worked everywhere. Now I find myself having to think twice — doing the math more carefully than I did in the past and having to decide what's best for investments." Michael Diedring, director of CEELI I enlarge

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"It's a shameful reality from the perspective of an expat. It's not yet a crippling situation, but it's not pleasant either. It's been more of a lifestyle reduction." Rick Pinard, 14-year American expat enlarge

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"Making less money for the same work is difficult for anyone — it's demoralizing." Thomas Mershon, director of the University of Pittsburgh in Prague enlarge

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"It's a sad situation. When I came here the dollar was a good piece of money. Now my social security is down to half the amount I was getting three years ago. I can't visit friends in California and Cleveland." Milan Paumer, U.S. enlarge

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"One assumes that if someone's living here, they have high expenses in Czech crowns. If someone has legal permission to work here, I see no legitimate reason to be paid in dollars." William D. Harter, president of the Association of Am

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"It's been hard to cope knowing that so much of my salary is lost to simple currency adjustment. ... The little microcosm I'm living in involving the dollar has shown how confident the world is in America's financial future." enlarge

It’s not all about the Benjamins anymore.

In his video for the new movie American Gangster, U.S. rap star Jay-Z is living it up in New York City with beautiful women, luxury cars and fistfuls of cash. Standard MTV fare except for one detail — the cash he’s flashing is a wad of euros.

For many international professionals, this image strikes a nerve. Many Americans living in the European Union are getting squeezed as the exchange rate of the once-almighty dollar continues to plummet. Here in Prague, the situation is hindering business and foreign recruitment for corporations that pay U.S. salaries to their employees.

“The Czech crown is especially strong, but right now you’d be hard-pressed to find any currency that hasn’t grown substantially against the dollar,” says William D. Harter, president of the Association of Americans Resident Overseas. “For those people living abroad who have a dollar-based income, it’s been very painful.”

While most companies adopted the Czech crown in the 1990s, some, such as the University of Pittsburgh in Prague,

receive financing from U.S. headquarters, making it necessary to pay pay salaries in dollars. Others, such as Radio Free Europe/Radio Liberty, are funded directly by the U.S. government. While this arrangement was attractive for employees in previous years with a stronger exchange rate, many are now being forced to tighten their belts.

“For us, it’s become a morale issue,” says RFE/RL President Jeffrey Gedmin. “The dollar is really taking a beating, and there’s no simple solution in the short term. Many of our employees who have families are especially exposed.”

For those who have been working for years in the Czech Republic, the drop is especially disheartening. In past months, some say they have experienced a 15 percent decrease in salary, leading to problematic income tax calculations and difficulty keeping pace with the rising costs of living in Prague.

“I have definitely had to adapt to new spending habits,” says Matt Andrisani, a business development manager who lived in Europe for three and a half years before moving to Prague last March. “I have had to cut back on my travel plans to and from the U.S., travel within Europe and especially just general purchases of consumer goods and nights out.”

For Michael Diedring, director of CEELI Institute and the only member of his firm to earn a U.S. salary, such concerns for personal expense are combined with worries about the effect of the dollar’s fall on his not-for-profit company’s fundraising efforts, much of which take place in the United States.

“From a business perspective, it’s just been devastating,” he says. “Our financial muscle has weakened considerably.”

As for Czech salaried employees, while the dollar exchange rate may seem attractive to those interested in traveling or buying U.S. goods, officials warn that the fall could adversely affect the crown over time.

“If the dollar stays weak, it makes the world’s biggest consumer market more expensive for foreign goods,” says Weston Stacey, executive director of the American Chamber of Commerce in the Czech Republic. “At the same time, the initial investors will likely repatriate their profits, putting reverse pressure on the currency. [This could cause] a slight and gradual depreciation of the crown.”

Cushioning the fall

When the first foreign businesspeople arrived after the 1989 revolution, many companies offered all-inclusive relocation benefit packages, often including provisions to account for currency inflation. Over time, these arrangements were altered or discontinued entirely as the Czech crown stabilized. Contractual changes are now being considered by several companies in an effort to sustain foreign employee recruitment.

As many professionals have dollar-based expenses, most corporations are prevented from switching to crown or euro salaries, although some are considering cost-of-living hedge allowances.

“We are developing procedures on how to handle the most recent drop as well as into the future,” says Thomas Mershon, director of the University of Pittsburgh in Prague. “There have been agreements to pay some positions as converted to a fixed rate.”

Gedmin has been involved in similar initiatives. “We’ve made it an institutional priority to get some relief and we’re working at it from every angle,” he says.

As to whether or not dollar-paid expats are considering relocation, most say it’s not a viable option under current circumstances. Many have families and established Czech professional circles that render a move nearly impossible.

“Relocating or returning is generally a long-term decision,” says Mershon, a married father of two and head of his household, who arrived here in 1994. “Luckily there are many, many other reasons for valuing one’s work here in the Czech Republic, such as the culture, the experience, family and friends.” But, he adds, the falling currency “may present an opportunity to look at the future and where one wants to be.”

Curtis M. Wong can be reached at news@praguepost.com

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