Monday, November 28, 2011

Using USAID FSN LCP to Establish Local Compensation Policies

Given the recent questions and discussions on the subject of compensation of foreign nationals under USAID Programs, I would like to donate and share with the community the attached policy and charts which designed for the use by contractors under USAID contracts, but which may very well be used by recipients under assistance instruments as well.

Contractors have been complying for many years with limitations in the AIDAR on the salaries paid to their foreign national staff in countries of performance. Although not required for Cooperative Agreements and Grants, the same limits are being applied by some Missions under assistance instruments, mainly because the cost principles require that the compensation paid to local (and all other) staff by non-profits be "comparable to that paid for similar work in the labor markets in which the organization competes for the kind of employees involved". Since US Embassy does their market surveys annually to determine appropriate rates for their local staff, local LCPs are supposed to be the benchmark for the salaries in those labor markets for similar employees.

Whether you agree or not with USAID's approach for grantee salaries, you may want to consider following the already established local market rates for similar positions, not only to make it easier for your staff, but also as a great proof of "reasonableness" often required by audits.

The attached guide to establishing the local rates uses similar methodology used by USAID and should be a good way of establishing and maintaining a local compensation policy similar to the local USAID Mission.

The policy document describes the process of establishing FSN level and step for each employee. It also has a section on TCNs. It is annexed by a spreadsheet which shows the FSN "series" used by USAID to establish FSN levels.

Please note that FSN levels may not cover all types of positions that you will require. Exceptions are considered when technical experts/professional employees have no comparable FSN level in the Mission, in which case local market rates should be put forward with explanation.

I hope that these documents de-mystify some of this process for many of you and you will find them helpful in establishing local compensation policies, preparing cost notes etc.