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ReseaRch scope and Methodology

In an era characterised by political uncertainty, unpredictable oil prices, and changing workforce demographics, organisations in the GCC need to ensure that they have strategies in place to engage and retain employees. Against the backdrop of considerable economic and political uncertainty, most companies are focusing on consolidating their positions in their existing markets. Some are looking at geographic expansion into new markets; others are looking to open up new lines of business. For all of them, the challenge remains: to attract and retain top talent.

For the 3rd year, this research study, conducted with 161 GCC organisations across the full spectrum of industry sectors, highlights the continuing need to manage and control C&B budgets to avoid spiralling costs, whilst simultaneously motivating the workforce. As salary movements, in many cases, are barely keeping pace with inflation, organisations need to consider how they package their rewards. A shift to Total Rewards, to reduce the emphasis on individual allowances, is one strategy being used in the region, but still high levels of uncertainty about bonus payments and salary increases for the next twelve months are adding to the challenge of retaining staff.

Respondents were asked to report on key pay indicators inside their companies during 2013-2015, to analyse major pay movements and trends. The report also presents the companies’ views on regional trends in compensation and benefits instruments, including flexible benefits and employee wellness programmes.

Finally, the report highlights the development needs of C&B professionals as they tackle the strategic challenges that come with the regional economic maturation and the associated changes in the world of work.

a stUdy By

gcc coMpensatIon and BeneFIts tRends In 2015RetaInIng talent In UnceRtaIn tIMes

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salaRy MoveMents, BonUses and attRItIon Rates In the gcc

(i) RepoRted pay IncReases In 2014 weRe Below pRedIcted

The upward trend in wages continued in 2014 and is predicted to continue throughout 2015, but considerable pressures on C&B budgets remain as many of the region’s pay rises are falling behind inflation rates.

When we consider actual pay rises in 2014 in comparison to those that companies predicted, we discover that significantly more organisations fell into the categories receiving the lowest and the highest pay increases in percentage terms.

At the low end, 17.6% of companies predicted a pay increase of 3.5 percent or lower, but the actual number of companies giving this level of pay increase was nearly double that, with 30.1% of companies in this range.

This lower-than-predicted rise is also evident when we consider pay rises of 4.5 percent or less. Last year saw about a third of companies predicting that workers would receive pay rises at this level. However, the actual figures show that nearly one-half of the companies (46.4 percent) gave pay rises at the low end. Companies are being cautiously optimistic about the outlook for next year with about two-thirds predicting a pay increase above 4.5 percent.

At the other end of the spectrum only 10.1 percent of companies predicted a 6.5 percent or higher pay rise, but the actual figure was 17.1 percent.

The majority of companies (nearly 70 percent) stated that they had yet to feel the effect of the drop in oil prices, but a significant minority suggested that lower oil prices will have a negative impact on C&B budgets, affecting either salaries, bonuses or both.

Taking a different approach to controlling expenditure, just over 11 percent of companies said that they plan to reduce the size of the workforce.

Pay rises in the gcc

% of pay increase

2014 prediction 2014 actual 2015 prediction

% o

f com

pani

es

35

30

25

20

15

10

5

03.5% or lower

4% 4.5% 5% 5.5% 6% 6.5% or higher

Don’t know or did not answer

17.6

30.1

16.3

6.9

11.4

12.2

8.8

4.9

5.7

18.2

27.6

15.4

4.4

4.9

8.9

5.0

4.1

4.9

10.1

17.1

8.1

28.9 0

28.5

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Bonuses anD uncertainty over oil

The uncertainty over the oil price is also affecting the outlook for bonuses in the region. The survey responses show that, this year, a much higher percentage of companies (an increase of 17.2 percent over last year) are not certain what bonuses they will be paying in relation to 2014.

attrition rates in the gcc

In 2014 more than 40 percent of companies reported expected attrition rates above 8 percent. This figure has improved with just over one-third of companies (33.3 percent) reporting such high levels of attrition. Moreover, more companies reported low attrition (less than 4 percent). While employee retention remains a major concern, the data suggests that some headway is being made.

emPloyee attrition rates

% of attrition

45

40

35

30

25

20

15

10

5

0<4% 5% 6% 7% 8% 9% 10% or

higherDon't know

What Will haPPen to Bonus Payments in your comPany next year?

2015

Lower than last year 12.2% Same as last year 29.3% Higher than last year 13% Don’t know yet 45.5%

Lower than last year 15.7% Same as last year 34.6% Higher than last year 21.4% Don’t know yet 28.3%

2014

2015 prediction2014 actual

% o

f com

pani

es

30.8

11.3

6.9

4.4

12.610.7

17.6

5.7

38.2

9.8

4.9

5.7 7.3

5.7

20.3

8.1

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(ii) the oUtlook FoR 2015 coMpaRed to 2014

Unsurprisingly employee engagement remains the top priority for HR in the region and this continues to present considerable challenges to HR in general, and to C&B in particular. Employees have high expectations and managing retention in an environment where pay increases are not seen to be keeping pace with inflation, especially when it comes to the cost of housing and education, is not easy. In February 2015, Bahrain News Agency reported that inflation rates in the GCC countries ranged from 3.1 percent (UAE) to 0.8 percent (Oman) in the year to December 2014. For many employees, 3.5 percent or lower pay rises will see them barely able to keep up with inflation, and such low pay increases are unlikely to have any positive motivational effect on employees.

Many organisations are shifting their focus to a Total Rewards approach to increase the perceived value of non-cash benefits, and to encourage employees to focus on a ‘whole pay’ approach rather than the individual elements of their compensation packages.

By researching their employees’ needs and wants, and establishing a robust evP, they will be one step closer to retaining their valued employees without an overemphasis on compensation

Employee engagement remains important because of its impact on employee retention. While efforts to retain employees do seem to be paying off, it would be a mistake to stop paying attention to the issue. The survey respondents again rated retention as their second-highest priority this year. As regional countries strive to increase levels of National employment, sometimes under substantial government pressure, organisations are forced to increase salaries to prevent staff that they have trained from moving to another company that is offering them a better package.

Educating the workforce to see beyond compensation and benefits and to consider other aspects of the Employee Value Proposition (EVP) is not always easy. Companies need to consider the EVP as a whole, and take a creative approach to such issues as working conditions, career development, work-life balance, corporate social responsibility, and employee recognition. By researching their employees’ needs and wants, and establishing a robust EVP, they will be one step closer to retaining their valued employees without an overemphasis on compensation.

“competitive pressure on talent is creating upward pressure on salaries and benefits. Total Rewards need to be managed through perceived benefits being greater than the monetary benefit. For example, we can do this by providing time off to be with children for sports day or other events, or by introducing flexible working, where employees are measured on their individual key performance indicators and how they impact company profitability and success.”

(2015 survey respondee)

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“major costs are health insurance, housing and schooling, all of which have been spiraling in uae. how do you manage expectations and retain people?”

2015 survey respondent

housing costs

Pressure on housing costs has continued and when workers take rent increases into account, their annual pay increases will mean that they can continue to pay their bills—but for many there won’t be much more.

The largest increase in housing and utility prices was in Qatar (7.3%), but this price category also rose substantially in Bahrain (6.1), the UAE (5.39) and Kuwait (5.03). In Saudi Arabia the increase was 2.5% and there was a marginal increase of 0.38% in Oman.

There have been some reports of lower house prices and an expected flow-on effect on rents in Dubai, but this has been contradicted by recent reports which suggest that rents will remain fairly stable until 2016. In Qatar there is considerable ongoing pressure on rents with some expatriates reportedly spending more than a third of their income on housing. The undersupply in Qatar is expected to continue for the next three years, increasing pressure on rents.

Companies continue to adopt different approaches to managing housing expenses, but the survey responses suggest that many companies are not planning to change their allowances. C&B professionals are wary of increasing these allowances because it is easy to end up in an ever increasing cost and employee expectation spiral, which will put pressure on reward budgets. That said some do plan to increase housing allowances. Other approaches include:

§ Repackaging salaries into a total package,§ Removing allowances allocated for housing and education,§ Introducing or expanding the provision of company accommodation, and§ Linking housing allowances to housing cost indices.

“housing costs in particular will increase pressure but it is important that employers resist this pressure and do not respond to opportunistic landlords seeking to "talk up" the housing market. in a maturing employment market there is a need to move away from the artificial segregation of basic pay and benefits. Employees should receive a remuneration package that is commensurate with the job without the complication of housing, travel and other benefits. There should however be more emphasis on variable pay for performance.”

(2015 survey respondee)

Top aREas oF inTEREsT FoR C&B pRoFEssionalImprove employee engagement

Improve employee retention

Manage cost of allowances

Revamp salary scales / grades

Manage salary increases 30.1%

32.5%

39.0%

56.1%

63.4%

25.20%

30.80%

42.80%

43.40%

51.60%

2015 2014

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in september 2014, mercer stated, “43% of those with a comprehensive choice program report that it has lowered their overall benefits cost, whereas another 23% report that it has been cost neutral.”

FlExiBlE BEnEFiTs

Two viEws FRom ThE maRkET on FlExiBlE BEnEFiTs

Opinions on the usefulness and viability of flexible benefits in the region continue to be mixed. Interest in the concept is higher than in the past, but a slight majority still suggest that barriers to their introduction in the region remain, including legal constraints, lack of tax incentives, the need for more employee education about the concept, and the ‘cash mentality’ of many employees. Companies also reported their perception that vendors in the region were not yet ready to provide flexible alternatives at affordable rates, and they are worried about the cost of providing flexible benefits.

In Europe outsourced providers create flexible packages covering a wide-ranging suite of benefits, and consultancy firm Mercer reported that key motivations for employers to provide a benefits choice programme include:

§ Remaining competitive,§ Retaining talent, and§ Improving employee engagement.

In September 2014, Mercer stated, “43% of those with a comprehensive choice programme report that it has lowered their overall benefits cost, whereas another 23% report that it has been cost neutral.”

Survey respondents in the GCC see flexible benefits as most applicable in the area of medical insurance, but consider that the insurance companies are not yet flexible enough to make them workable. There is also concern that the majority of employees are still focused on cash rather than benefits.

If GCC organisations are serious about employee engagement and retention, flexible benefits need to be considered. As research indicates that Generation Y and Millennial employees tend to have different expectations, and requirements, from work and workplaces, flexible benefits offering employee choice is an option that allows employees to be rewarded in the ways that are most important to them.

“we have considered this in the past. There are no tax incentives to promote this and insurers are not keen to underwrite aspects of care where only those who want to claim will sign up for it. much of the population is more concerned about sending money home rather than having additional benefits here and so prefers the option of higher salary and lower benefits.”

(2015 survey respondee)

“Provided companies educate their employees about the options and employees understand the responsibility they have to take, then yes, flexible benefits could very well work in the middle East. however, companies will need start to communicate benefits and the role employees play now, in order to be ready for the introduction in a few months or years.”

(2015 survey respondee)

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“it's a win-win for all involved. the challenge will be to ensure we have the correct support from external partners and help in maintaining momentum / getting Board acceptance.”2015 survey respondent

emPloyee Wellness

While the majority of the survey respondents said they do plan to introduce wellness programmes, the remaining companies either have wellness plans in place or are considering them.

The reasons given for considering wellness programs were to:

§ Increase employee engagement,§ Help control health insurance costs, and§ Manage employee health risks

There has been no change in the main concerns about introducing these programmes which are focused on gaining the top level support to fund the programs and to get the buy-in of middle managers.

(iii) coMpensatIon and BeneFIts (c&B) ManageRs In the gcc

nEEd FoR ongoing skill dEvElopmEnT

Many C&B managers in the region said that they would like to see organisations invest in the development of in-house knowledge, rather than depending on external consultants to design and implement reward strategies. The general perception seems to be that C&B positions are often regarded as administrative ones, rather than as pivotal HR roles that require a deep understanding of the workforce and its motivations, and their relationship to company performance.

REpoRTEd dEvElopmEnT nEEds oF gCC C&B managERstechnical skillsHow to build a compensation and benefits strategyUnderstanding the businessAccountingJob evaluationsPay-for-performanceIncentive design, including long-term plansManaging insurance schemesAnalytics and research

soft skillsUnderstanding the local markets and culturesGetting a better understanding of human motivation and psychology

Better communication and negotiation skills to interact with employees and get buy-in from senior management

Customer-service orientation

"Too many people think that the area of Rewards is just about numbers. So they assume that quantitative, analytical types are the only ones best suited to work in the function. That leads to multiple disasters. Rewards professionals need to study and understand human beings in the place of work. [...] Psychology and Organizational Behaviour are more complex and difficult to predict and manage than numbers. Numbers are just tools, the means, to help understand and manage people, not the end."

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REFEREnCEs

Bahrain News Agency, “GCC Inflation rates between 0.8% and 3.1% in December 2014”, 24 Feb 2015, http://www.bna.bh/portal/en/news/655704 (accessed 26 April 2015)

Gulf News, “Dubai rents won't fall significantly this year”, 22 Apr 2015, http://gccdaily.com/News/dubai-rents-wont-fall-significantly-this-year/ (accessed 26 April 2015)

Jones, Robert, “Prices fluctuate in maturing real estate market”, MEED, 18 March 2015, http://www.meed.com/sectors/construction/real-estate/prices-fluctuate-in-maturing-real-estate-market/3207189.article (accessed 26 April 2015)

Mercer, “Employee Benefits Choice Gaining Favor in EMEA”, http://www.mercer.com.au/content/mercer/asia-pacific/au/en/insights/view/2014/employee-benefits-choice-gaining-favor-in-emea.html (accessed 26 April 2015)

Special thanks to sandrine Bardot, Managing Director of Bardot group for her assistance in the analysis and study of this report

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