Page 168 - Special Topic Session (STS) - Volume 3

STS538 Ibrahim S Y.
The challenge here is that while the updating of the PAI is done with the
use of objective data and mechanisms, which maintain approximate PPP of
salaries over time, that of the pay index may produce unintended
consequences, emanating from various competing compensation policy
objectives. For example, an exclusive focus on stability of salaries may have
the impact of creating an excessive disparity between the evolutions of the
two indices over time, which must then be reconciled upon implementation of
the results of the next survey, possibly leading to significant salary reductions,
and hence undermining the objective of predictability of salary adjustments.
Significant reductions in salary, regardless of whatever mitigation measures
may be in place to ensure a gradual transition to lower pay levels, invariably
undermine confidence in the methodology underpinning the salary
adjustment system and may make it difficult for staff to accept the results
generated, thereby failing to achieve a key criterion of data quality.

5. Concluding remarks
This paper highlights some of the challenges that arise in the measurement
of cost of living in the context of the PAS, as well as information on how they
are dealt with. The challenges stem from the inevitable trade-off between the
statistical and economic requirements of a cost-of-living index and desirable
compensation policy goals. At the time of writing, a comprehensive review of
the PAS is in progress. Both the statistical methodology underpinning the
compilation of the PAI and the operational rules for salary setting are being
reviewed. The review presents an opportunity to address long-term strategic
issues, including the challenges highlighted in this paper.
One of the issues being examined is the feasibility of moving from the
current system of bilateral comparisons with New York as the base, using the
formula shown in Section III; to a system of multilateral indices that is transitive
and based on superlative building blocks, such as a Törnqvist index-based
bilateral star system with New York at the center; or a multilateral version,
with transitivized parities. As such alternative schemes might result in a star
centre different from New York, there is a need to carefully examine the extent
to which they are compatible with bedrock UN compensation principles. Also,
there is a special focus on the measurement of the housing component, in
recognition of its large relative weight. Issues under examination include the
trade-off between representativity of market rent data with respect to staff
residential patterns, and comparability of the data across locations; as well as
the degree of consistency with the evolution of spatial rent indices for a given
location relative to New York, with temporal rent indices for that location.
Finally, there is the conceptual issue of whether strict adherence to
international statistical standards is compatible with the realities of the PAI
measurement objective. For instance, the definition of OA expenditures,

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