Erosion of the rewards landscape in the Middle East
There is no doubt that the Middle East continues to be a popular destination for expat Human Resource professionals from around the world, but for some there has been a steady decline in the financial rewards on offer.
The region remains an attractive tax free haven (for most nationalities) from a direct taxation perspective, despite a seemingly ever-increasing level of indirect taxes eroding take-home pay. With the UAE introducing VAT in January 2018, albeit at a low rate of circa 5%, this seems set to continue. Whilst direct tax is still only on the horizon in the UAE at this stage, in a recent study by the CFA, 80% of the respondents said that they would consider moving if income tax was introduced and nearly two-thirds (59%) said that the GCC’s tax-free environment was a key factor in their decision to move to the region in the first place.
The region’s Oil & Gas industry, which has been hit hard by the falling oil price, was perhaps one of the last bastions of the “full expat package” with employees and their families receiving a wide variety of benefits, ranging from education allowances to utility payments. Whilst still in existence in the more widely accepted “hardship” postings such as Saudi Arabia and Kuwait, the UAE has seen packages heavily reduced. Many companies in the UAE have attempted to scale back their comprehensive benefits packages with all the “bells and whistles”, on the basis that the UAE is widely seen to be an attractive destination with an excellent quality of life and a developed infrastructure.
The costs of living in the Middle East with a family are high, compounded by continually increasing education fees; with the reduction in benefits set to continue, there could be significant employee demographic changes. Broadly speaking, employees in the 20-30 years age bracket, who are statistically more likely to be single without dependents, and those in the 50-60 years bracket who perhaps have children at university (or even self- sufficient children, if that is ever the case!), are as a result more likely to stay or be attracted to the region. This in itself is not a negative but many employers view those in the 30-50 years bracket as being key to a company’s future success, believing that they are at a stage in their careers where they have solid work experience but with a long career runway ahead.
Typically in-region packages are still made up of three fixed allowances: base salary, housing and transport, with varying splits. Variable pay strategies are being reviewed and those HR professionals that have invested considerable time, often enduring difficult conversations during recent bonus rounds, will perhaps positively consider the removal of the bonus altogether in favour of an increase in fixed pay or benefits. With a huge multicultural workforce in the region there are often found to be strong allegiances between fellow expat workers from the same countries. This can result in performance review and appraisal systems having questionable validity and therefore incorrectly affecting bonus payments. Regularly having to negotiate offers between our clients and candidates, we see that the fixed pay and benefits are of much greater interest than variable pay. If the bonus is not acting as a genuine incentive in the recruitment process, and potentially not rewarding the best performers internally, could the associated time, effort and considerable cost be channelled into higher fixed pay and better benefits to assist the company in becoming an employer of choice?