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1 HEALTH WEALTH CAREER MERCER COUNTRY MONITOR FOCUS ON TURKEY 22 February 2017 MERCER
2 MERCER COUNTRY MONITOR - FOCUS ON TURKEY TABLE OF CONTENTS 1. Background Mercer Location Evaluation Reports Snapshot of Local Practices in Turkey Mercer Recommendations Temporary Supplement to Hardship Premium for All Locations in Turkey Temporary Cost of Living Recommendation for All Locations in Turkey Annex Contact Details About Mercer MERCER 1
3 1 Background To better understand the geopolitical environment in Turkey and gauge the significance of current developments there, we rely on information issued by governments, specialized security analysts, and international organizations. These sources include foreign travel advisory services of the governments of Canada, United Kingdom, United States, Switzerland, and France; International SOS/Control Risks; Transparency International; Freedom House; Reporters Without Borders; and a large number of private news agencies. The following points summarize the information provided by these sources: Our sources indicate that Turkey has longstanding concerns related to terrorism, internal instability, and the fragile status of personal and media freedoms. With respect to terrorism, the Kurdistan Workers Party (PKK) has been in violent conflict with state authorities since the 1980s, primarily by targeting police and army posts. The Kurdistan Freedom Falcons (TAK), which targets civilians, was most recently involved in the December 2016 bomb attacks in Istanbul. Since 2013, the Islamic State/Daesh has been increasingly active, targeting civilians as in the January 2017 gunmen attack at the Istanbul nightclub. Our sources contend that the influx of refugees from the civil war in Syria has contributed significantly to internal instability, and the military intervention in Syria has engaged the country in that conflict. Likewise, the possible rapprochement with Russia may lead to additional tensions with the European Union and NATO. Decades of occasional tension RECENT MAJOR EVENTS January 6, 2015, Istanbul, suicide bomb (IS) July, 2015, break in ceasefire with Kurdish PKK October 10, 2015, Ankara, two suicide bombs, pro-kurdish rally (IS) February 17, 2016, Ankara, bomb attack (TAK) March 13, 2016, Ankara, car bomb (TAK) March 19, 2016, Istanbul, suicide bomb, tourists (Islamic State) April 27, 2016, Bursa, suicide bomb, mosque (TAK) June 7, 2016, Istanbul, bomb attack (TAK) June 28, 2016, Istanbul, a terrorist attack, airport (IS) July 15, 2016, across Turkey, failed coup, over 150,000 detained or dismissed in the aftermath July 20, 2016, Turkey, S&P credit ranking downgrade October 14, 2016, Antalya, rocket attack November 24, 2016, Adana, bomb attack (PKK) December 10, 2016, Istanbul, two bombs near stadium (TAK) December 19, 2016, Ankara, Russian ambassador shot January 1, 2017, Istanbul, gunman attack, nightclub (IS) January 5, 2017, Izmir, car bomb & gun attack (TAK) January 27, 2017, Turkey, Turkish lira (TRY) drops against dollar (USD) 2
4 also characterize relations between Turkey and Greece; this involves the status of Cyprus as an island divided into Greek and Turkish parts, disputes over the Aegean islands, and more recently by requests for asylum in Greece by individuals affected by the aftermath of the 2016 coup attempt in Turkey. Finally, our sources also contend that personal and media freedoms are compromised in Turkey. Although the Justice and Development Party (AKP) of President Erdogan engaged in liberalizing reforms following the party s victory in the 2002 elections, in the aftermath of the failed coup of 2016, there was an escalation in censorship and diminution in press freedom. This was matched by the arrest, detention, or dismissal of more than 150,000 people. The post-coup state of emergency was extended to April 19,
5 2 Mercer Location Evaluation Reports The Location Evaluation Reports (LERs) reflected negative developments in Turkey. Scores for the factor political violence and repression were increased (made worse) in Ankara and Istanbul. As a result, the hardship premium for Ankara rose from 10% to 15%; the hardship premium for Istanbul remained 10%, but the total score for Istanbul had risen to within two points of the 15% hardship-premium range. On one hand, the current hardship recommendations are considered to be accurate. On the other hand, the borderline condition of some hardship allowances prompts us to closely monitor a number of developments in Turkey. These include the falling value of the Turkish lira (and consequent rising prices) and a decline in the growth rate of the Turkish economy along with rising unemployment all potential sources of unrest. The Turkish parliament also took action that may increase the president s executive authority and may lead to further deterioration of various freedoms. The following chart shows the change in scores for the factor political violence and repression from 2012 to 2016 for Ankara and Istanbul. Because Ankara is the political center of the country, the score changes are more severe than in Istanbul. The scores in this factor reflect concerns such as election-related violence, terrorism, government repression, and violence related to public protests. Political Violence and Repression in Turkey ( ) Cities Istanbul Ankara Factor Source: Location Evaluation Reports 4
6 In both Istanbul and Ankara, the scores for the factor political and social environment increased (became worse). The scores reflect the overall freedom within Turkey s political system, ethnic and religious restrictions and tolerance as they affect expatriates, press freedom, the status of human and women s rights, corruption, and the presence of visible poverty. Political and Social Environment in Turkey ( ) Cities Istanbul Ankara Factor Source: Location Evaluation Reports To address concerns about the ability of expatriates to safely enjoy leisure and cultural events in both cities, scores for the factor cultural and recreation facilities increased (became worse). These scores not only reflect the variety of cultural venues, nightlife options, and indoor and outdoor activities, but they also reflect restrictions on enjoyment as a result of severe crime and political violence. Cultural and Recreation Facilities in Turkey ( ) Cities Istanbul Ankara Factor Source: Location Evaluation Reports 5
7 3 Snapshot of Local Practices in Turkey Discussion with HR Managers in Turkey Mercer questioned HR managers, who responded on behalf of expatriates at local and international companies with offices in Turkey. From them, we obtained information about client practices throughout the country. We wanted to share their observations about the current situation and any action that has been taken as a result. Response to Security Concerns According to the local HR managers, only 17% of employees made requests for reassignment outside of Turkey as a result of security concerns. No employees, however, decided to leave Turkey. Have any of your employees requested reassignment from Turkey due to security concerns? Yes 17% No 83% 6
8 Difficulty Recruiting Assignees to Work in Turkey Twenty-five percent (25%) of discussion participants indicated that their company was having difficulty finding new assignees to work in Turkey, and 33% of companies were offering incentives to attract potential employees to work in Turkey. Has your company experienced any difficulties in finding new assigns to work in Turkey since July 2016? Yes 25% No 75% Impact on Leisure Activities Concerns about personal security are having the greatest impact on decisions to visit shopping malls, use public transportation, and to visit parks and cultural venues such as cinemas, theatres, opera, and concert halls. Visits to restaurants were also affected in addition to the use of indoor and outdoor sport facilities. Have your employees resigned from any of the following activities due to security concerns? ) Going to shopping malls 50% Using public transport 33% Going to parks 25% Going to cinemas, theatres, operas, concert halls 25% Other activities 17% Going to restaurants 17% Using outdoor sport facilities 8% Using indoor sport facilities 8% Note: Participants provided multiple responses for this question. 7
9 Impact of the State of Emergency Half of the discussion participants did not identify any direct effects as a result of the state of emergency, but one-third of participants are refraining from internet use, and 17% noticed an increase in police controls and searches. Transport difficulties and the curfew also are having an impact. Has the state of emergency had any of the following direct effects on your employees? Don't know/no answer 50% Refraining from using Internet 33% Increased police controls (including searches) 17% None 8% Other difficulties 8% Curfew 8% Difficulties in using public transport (closed streets, irregular timetables of buses, closed metro stations) 8% Note: Participants provided multiple responses for this question. 8
10 Currency of Salary Payments Although 75% of employees were paid exclusively in the local currency (Turkish lira), companies have not changed their payment policies in response to the depreciation of the Turkish lira during the past six months. Furthermore, only 9% of companies are planning to change their payment policies in the next six months. In what currency your employees' salaries are paid? 75% 8% 8% 8% TRY USD EUR Both (TRY and international currency) 9
11 4 Mercer Recommendations Temporary Supplement to Hardship Premium for All Locations in Turkey Mercer recommends a temporary crisis supplement of 5% of the annual gross base pay to be added to the current (November 2016) hardship premium recommendations for all Location Evaluation Report (LER) locations in Turkey, namely Ankara and Istanbul. This supplemental recommendation will remain in effect until the next Location Evaluation Reports update in November Temporary Cost of Living Recommendation for All Locations in Turkey Between August 2016 and January 2017, the Turkish lira lost approximately: 26% against the United States dollar: USD 1 = TRY % against the euro: EUR 1 = TRY % against the British pound: GBP 1 = TRY Mercer Cost of Living Indices for Istanbul (Turkey) have decreased since 2012 as a result of Turkish lira (TRY) depreciation relative to many other major currencies. The measured price movement in Istanbul has been greater than many home countries price movements between 2012 and One can see a clear correlation between currency devaluation and price increases in Istanbul. Hence, imported goods are getting more expensive to purchase, as more Turkish liras are needed to import goods from other countries. As a result, Turkish retailers increased their prices. To ensure that a given assignee is not affected by the currency fluctuation, the recommended approach is to split the payment of the assignee between home and host currencies. The funds that are not needed in the host country, such as incentive payments and savings, are paid at home in the currency of the home country, and the portion of the salary that is spent at the assignment location such as the spendable income portion, the Cost of Living allowance, and housing is paid in the currency of the host country. Splitting pay protects employees and their savings from currency fluctuations. In the case of expatriates who are receiving compensation all in one currency (home or host), we recommend implementing a currency protection. From a Cost of Living allowance perspective, the impact of the currency devaluation will be measured in the next price survey that will take place in March and be released in early May Mercer is monitoring the situation in Turkey and will alert clients in case of future changes. 10
12 5 Annex Selected Sources of Information on Security, Instability, and Freedoms Foreign travel advisory services: Canada United Kingdom United States, Overseas Security Advisory Council (OSAC) Switzerland France International SOS/Control Risks Transparency International Freedom House Reporters Without Borders 11
13 6 Contact Details If you would like additional information or have any questions, please feel free to contact us: Mercer Quality of Living Mercer Cost of Living Mercer 22 rue François-Perréard 1225 Geneva Switzerland
14 7 About Mercer At Mercer, we make a difference in the lives of more than 110 million people every day by advancing their health, wealth, and careers. We re in the business of creating more secure and rewarding futures for our clients and their employees whether we re designing affordable health plans, assuring income for retirement, or aligning workers with workforce needs. Using analysis and insights as catalysts for change, we anticipate and understand the individual impact of business decisions, now and in the future. We see people s current and future needs through a lens of innovation, and our holistic view, specialized expertise, and deep analytical rigor underpin each and every idea and solution we offer. For more than 70 years, we ve turned our insights into actions, enabling people around the globe to live, work, and retire well. At Mercer, we say we Make Tomorrow, Today. Mercer LLC and its separately incorporated operating entities around the world are part of Marsh & McLennan Companies, a publicly held company (ticker symbol: MMC) listed on the New York, Chicago, and London stock exchanges. 13
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