Do changes in the exchange rate used to calculate the COLA cause the assignee to lose/gain purchasing power?

    Oct 03, 2022 @ 12:41 PM / by Bruno Lagasse

    webinar cola image

    The results are in -- AIRINC and EY's joint survey on Sustainability in Global Mobility is now available!

    As part of our “back to basics” webinar series, Marie Soubessens and Kevin Theissen presented on The Effects of Inflation and Exchange Rate Fluctuations on the COLA. Throughout this 30-minute webinar they invited the audience to answer some quick questions. 

    One question was “do changes in the exchange rate used to calculate the COLA cause the assignee to lose/gain purchasing power?”


    Responses were:

    • No 27%
    • Yes 43%
    • Sometimes 30%

    All three answers are correct! But why is that?

    No. In a perfect world, an assignee should not gain or lose purchasing power due to exchange rate changes. This is what the COLA is for, to protect the home purchasing power by providing a differential element that is calculated based on the current exchange rate, assuming the assignee is still paid in home country currencies but spends in host country currencies. As the exchange rate fluctuates, frequent revisions of the COLA are to be expected, to stay on top of any exchange rate variation. So, the philosophy of the COLA is that the assignee should not lose or gain host purchasing power based on exchange rate change.

    Yes. We are not living in a perfect world. The COLA is calculated at a given exchange rate (be it a spot rate, a monthly average, or anything else) whilst the reality is that exchange rates are constantly changing. The COLA does cover for the exact difference in cost of Goods & Services at the time of its calculation. However, because the value of a currency never stands still, that same COLA (and the transferred Spendable Income) in home currency will not buy the expected amount of host currencies a few seconds later. Assignees may gain or lose purchasing power at host due to a now more or less favorable exchange rates. Differences are often minimal and/or may offset each other until the COLA is next updated. But what if these differences are larger? This is exactly why companies review the COLA as often as administratively permitted.

    Sometimes. Within the same programme you have assignments in the EUR zone and outside the EUR zone. Assignments in the EUR zone are not affected at all by the exchange rate changes, but others may be. On certain routes (Home to Host), the relative inflation may exactly offset the effect of the exchange rate change—from one update to the other the COLA remains the same. On other routes, the COLA will change. And what about companies retroactively calculating the COLA and paying the difference to the assignee? In this case, the assignee is not losing on Exchange Rate change. But they may gain (unless the company asks the employee to repay some of the COLA back, which we have never seen), making “sometimes” a very valid response.

    You want to know more about our approach to COLA and exchange rates? Do you want to receive a link to the recording of our Webinar? Click here or contact us!

    Contact Us




    Read more from our blog:

    Diesel price hike increases Nigerian rents

    What were the Worst & Best Currency Performers last month?

    New Webinar: What is the latest on Sustainability in Global Mobility?


    Topics: Global Mobility, Goods & Services, COLA, exchange rates, Calculate cost of living allowance, International Assignment Calculator, Long-Term Assignment, COLA Change Report

    Bruno Lagasse

    Written by Bruno Lagasse

    Bruno graduated from ICHEC Brussels Management School in 2001. He also received his B.S. in Finance from the St. Louis University of Brussels in 2003. Before joining AIRINC in 2005, Bruno gained significant experience as a Business Analyst in various international companies including Toshiba and Conoco Philips. Bruno served as Head of AIRINC’s European Client Engagement where he managed a number of client service managers and oversaw various International and European accounts in the consumer goods, oil & gas, communication, and financial services industries. Bruno moved to Deputy Region Leader for EMEA in April 2021: in this new role, he oversees our production, client engagement and client solutions teams, with a focus on cross-team collaboration, growth, and client satisfaction.