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Shifting sands

The first national compensation survey comes up with some not so palatable finds. It may be time to rethink strategies
BusinessToday reports

As Oman’s economy surges ahead, it is not just the topline and bottomline of companies that have grown fatter. Their wage bills have gone up, too.

The ORDC Lighthouse National Compen-sation Survey 2006 shows that average salaries went up by 7-9 per cent across sectors in 2006. The relaxation of rules regarding job mobility and the growing challenge of attracting and retaining talent are forcing companies to rethink their human resource (HR) policies.

The highest salary increases came from sectors which witnessed fast paced growth. Petrochemical drilling (12-14 per cent), information technology (8-12 per cent), banks (8-11 per cent) and finance (9-10 per cent) were the sectors which gave the highest raises.

The other big news of the survey has been the growing popularity of performance-linked pay. Over 60 per cent of the companies have some component of staff salaries linked to performance. Says Ajay Bhati, managing consultant, Lighthouse, “Compensation is not an end by itself. While the compensation pac-kage enhances one’s social standing, several non-financial factors like growth opportunities, training avenues and sense of self worth are also becoming important.” Not only are variable salaries in vogue, even Employee Stock Option Plans (ESOPs) are prevalent in the market. Three per cent of the surveyed companies are giving ESOPs. Most of these companies are from the power sector, where tie-ups with foreign companies are in vogue.

The dynamic nature of the sultanate’s labour market is good news. But it also throws up a set of concerns. The main issue is mana-ging the churn due to high attrition rate. The latter being triggered by limited opportunities for career growth, dissatisfaction with comp-any policies and monotony of operations. The market is facing an acute shortfall of technical professionals in the market (at the junior level), as they are difficult to hire, train and retain. Says Devavrath Nambiar, managing consultant, ORDC, “Most companies in Oman tend to be reactive, acting only when the need arises. There are instances when key vacancies have been left unfilled for up to six months. There is a need for better manpower planning and talent management.”

Not only are people shifting jobs in Oman but there is a flight of Omani talent across GCC countries – especially to the UAE and Qatar. The positions where it is difficult to attract and retain talent are middle management (Omani nationals), legal and advisory positions, middle management finance positions, research analysts, IT managerial positions, IT progra-mmers. Owing to the shortage, these are also positions that enjoy the highest skill premiums in the market.

Says Masood al Maskary, an HR consultant, “As the environment changes, people’s needs have also changed. Jobs have become more challenging. The factors that drive people to stay with an organisation or leave it have also changed over the years. But many companies still work with the same old system of putting together compensation packages that they have had over the last 20-30 years. They have to understand the need to change.”

changing face of job market
Across the borders

Inflation and growing opportunities in emerging markets is making the Gulf a less attractive destination for expatriates
Source: GulfTalent.com 

Over the last few years, the six countries of the Gulf Cooperation Council (GCC) have experienced a period of rapid economic growth, driven largely by the inflow of capital resulting from high oil prices. At the same time, the region has also been maturing fast, with many sectors such as telecom and financial services undergoing deregulation and opening up to competition. The emergence of new sectors like investment banking and private equity has also been changing the contours of the job market. All these factors have increased the demand for talent and expertise.

The rapid economic growth and competition for talent has forced up salary levels across the region. According to GulfTalent.com’s annual survey of compensation trends, average salaries across the Gulf rose by seven per cent in 2005 and 7.9 per cent in 2006.

Qatar registered the highest average increase in pay at 11.1 per cent followed by the UAE at 10.3 per cent, Kuwait stood at eight per cent close to the regional average. Saudi Arabia and Bahrain had below-average increases of 6.5 per cent and 6.4 per cent.

On a sector basis, the largest pay rise was observed in the construction sector at 12.8 per cent, followed by banking and finance at 8.2 per cent and oil and gas at 7.7 per cent. Sectors with the lowest raises were healthcare and education at 4.5 per cent and 3.5 per cent respectively. Sectors registering the highest pay increases appear to be those experiencing the fastest growth and facing skill shortages regionally and even globally in some cases. Also, sectors that registered the lowest increase typically experienced only moderate growth or were otherwise well supplied in terms of the required skill-base.

The expatriate factor
Traditionally, the GCC countries have had a high proportion of expatriates – low wage blue-collar workers as well as experienced professionals and senior managers. An estimated 31 per cent of the Gulf’s total population and 56 per cent of the workforce consists of expatriates.

With countries like India and Jordan – the Gulf’s traditional talent sources – experiencing rapid economic growth of their own, countries in the Gulf have been experiencing difficulties in attracting expatriate talent. At the same time, the inflow of expatriates has by no means come to an end. With the Middle East increasingly making headlines around the world, the region is attracting interest from several segments of prof-essionals previously uninterested in the region.

The developments in the region’s financial sector, including the growing presence of regional and international investment banks and private equity firms, have honed the image of the region as a fast developing market offe-ring exciting career opportunities. This has started attracting a range of top-notch professionals from across the world, including banking and investment professionals, mid level and senior managers as well as graduates of the world’s top business schools. Data from INSEAD, a leading European business school, suggests that the number of its MBA graduates employed in the Gulf has increased substantially from an average of two per cent in the 1990s to over ten per cent currently.

Another large segment increasingly moving to the Gulf are West-based Muslims of Arab or Asian origin, many of them holding dual nationality. While financial considerations remain the biggest single motive, they appear to be decreasing in significance as a component of the overall value proposition. An increasing number of people are moving to the region for long-term career aspirations or even personal reasons.

Trends in retention
The success of various Gulf countries varies as far as ability to attract and retain expatriate talent goes. Despite evidence of some expatriates leaving the Gulf due to high costs, the outflow is still small. Overall, the majority of expatriates living in the Gulf prefer to stay here, with only six per cent planning to return to their home countries over the next 12 months.

For those planning to return home, the main reasons to do so are proximity to family and friends, higher pay, lower cost of living and more challenging career opportunities. Interestingly, the percentage of expats leaving each country is fairly uniform across the six GCC states – suggesting that the trend is driven largely by global factors affecting the whole region, including growth in India and the weak US dollar, rather than high inflation in particular parts of the Gulf.

There is however, significant mobility among Gulf countries themselves. Up to 37 per cent of professionals changing employment seek to do so outside the Gulf country in which they are currently based. The figure is lower in the UAE at 16 per cent and the highest in Oman at 60 per cent.

Some of this movement is motivated by government-sponsored restrictions prevalent in most Gulf countries, which prohibit expatriates from switching employers. However, most movement is voluntary and is in pursuit of better opportunities.

The UAE is also clearly the most popular destination for Gulf-based expatriates, attrac-ting 62 per cent of all expatriate movement within the region. Qatar is in the second place, thanks to above average pay packages and the hype created by the country’s massive hunt for foreign expertise.

Based on the survey results, the UAE also enjoys the highest retention rate in the region – with 78 per cent of current expatriate residents planning to remain there. Kuwait, despite its unpopularity with new expatriates entering the Gulf, ranks highly in terms of retention of exis-ting people. This may be due to the relatively long-term nature of expatriate presence in Kuwait and strong social and family ties developed over the years. Oman is the least attractive country for current expatriate residents with less than half planning to remain there.

Overall, it appears that while the UAE is financially the least attractive location in the Gulf, it remains popular due to other non-financial reasons that differentiate it from the rest of the Gulf.

Mobility of Gulf nationals
The majority of Gulf nationals tend to stay in their home countries due to advantages of familiarity, proximity to family and friends as well as superior career opportunities available for natives.

However, there is evidence of some limited movement among Gulf nationals, particularly those with higher education, international experience and good English language skills. The UAE is the prime destination for this segment, largely as a result of developments in its financial sector, a cosmopolitan environment, high penetration of multinationals as well as lifestyle considerations.

Qatar is also proving attractive largely because of financial considerations. Oman and Bahrain are both seeing an active flow of their nationals to Qatar – given lower pay pac-kages on offer in their home countries. Oman also appears to be the only Gulf country that is losing not only expatriates but also a large number of its own nationals to other countries in the region.