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The Implications of the Arab Springfor Compensation and BenefitsWarren D’Cruz Warren D’Cruz is a consultant working for Hay Group in the Middle East, based in the Dubai office. He is a member of the reward consulting team and has written a number of reports on compensation and benefits in the Gulf and wider Middle East markets. Before joining Hay Group, Mr D’Cruz worked with RAK Bank, a leading retail bank in the UAE. He has a Bachelor of Science degree and a Diploma in Human Resource Management from the University of Mumbai. Since the beginning of 2011, 20 countries Bahrain – probably the Gulf state most affected by in the Middle East and North Africa (MENA) violent protests on the part of nationals demanding have experienced extraordinary change. governmental reform – granted each Bahraini family Whether this is a ripple effect of events in BD 1,000* and reduced the housing services fees for its Tunisia and Egypt or whether the contest nationals by 25%. Kuwait granted its nationals for political voice, the ‘Arab Spring’ or the KD 1,000† and, in the public sector, increased salaries for call from citizens for the right to be heard certain job functions, such as engineers. and for accountability opens up an opportunity for better governance. Potentially, this will lead to profound The economies of Qatar and the United Arab Emirates, changes in the region’s political and social landscape. The which have a higher working population of expatriates unrest in several Middle Eastern countries is varied in its than other GCC states, made significant increases to the implications, with some states having a greater impact on pay of their national employees. Qatar declared a 60% national/regional economies than others. increase in government salaries in September 2011. This was followed by the oil and gas and financial services Before the uprisings, the region made significant progress sectors. At the time of this change to the labour law, on key social indicators, such as life expectancy and job private-sector companies were coming to terms with security. However, after the disruptions to the economic what it would mean for their payroll budgets and the systems following the Arab Spring, there has been a ability to attract the right talent. Since then, the decline in revenue, especially in the tourism sector. This legislation has been implemented in some, but not all, has been compounded by a wider spread in debt markets, industry sectors. The pensions of civil service instability in national stock markets and greater subsidies employees in Qatar were increased by up to 120%. and higher public-sector salaries. Some of the Gulf Cooperation Council (GCC) economies that are dependent In the UAE, the basic salary of all federal government on an expatriate workforce have found it difficult to employees was increased by up to 100%. This legislative attract and retain such workers due to safety concerns. change presents a challenge for employers trying to recruit UAE nationals into the private sector. The higher CHANGE AND GOVERNMENT REACTIONS pay and more comprehensive benefits make the public The impact of the Arab Spring has led to several sector an extremely attractive option for young Emiratis announcements by governments regarding increases in entering the workforce. pay and allowances for their national population, mainly in the public sector. Oman, a Gulf state, experienced The effects of the Arab revolt were not limited to the Gulf peaceful protests by its nationals who were demanding economies. In North Africa, Egypt increased the pay for all better working opportunities and employee benefits. State employees by 15% and also introduced a 15% The Government stipulated that organizations should increase in the State pension. All employees were raise the monthly minimum wage for nationals by 43%, provided with health-care insurance which was extended introduce a cost-of-living allowance in certain sectors to the family as well. The uprising also reached the Levant, and increase the pensions for nationals by 100%. The with Syria currently facing political turmoil. In Jordan the Government also declared that there would be 50,000 minimum wage has been increased by 27% along with an jobs created for Omani nationals within the next increase in social security contributions. In addition, 12 months which is leading to pressure on organizations salaries in the public sector have been raised and there to increase their recruitment drive for nationals. In Saudi Arabia public-sector wages increased by 15% and the minimum wage by 38%, while public-sector employees were provided with two months’ pay as a fixed bonus. This bonus payment was subsequently * £1 = BD xx.xx; €1 = BD xx.xx; US$1 = BD xx.xx as at replicated by major domestic corporations and banks, 10 February 2012 which are competing for the same talent, and help † £1 = KD xx.xx; €1 = KD xx.xx; US$1 = KD xx.xx as at maintain an attractive employee value proposition. 10 February 2012 12 Benefits & Compensation International • MARCH 2012 •
FIGURE 1 Pay Forecasts for 11 MENA Countries in 2012 % 16 Salary forecast Inflation Percentage increase 12 8 4 0 Bahrain Egypt Jordan Kuwait Lebanon Iran Iraq Oman Qatar Saudi UAE Arabia Countryhave been announcements of an extra subsidy of salary increases have done little for the development ofUS$550 million. Lebanon is in the process of reviewing its the performance culture in those organizations. In theminimum wage and allowances and an amendment to the future, as annual salary review budgets revert tolabour law has been put forward by the Cabinet. If the law something closer to inflation, there will be a need tois passed by Parliament, minimum wages will increase to introduce carefully considered salary reviewL£ 675,000* and the daily transport allowance and management processes to ensure that salary increaseeducation allowance will also be increased. Debate is rife budgets are allocated in a fair and justifiable manneras to whether the allowances should be incorporated into that is consistent with employee performance.basic salary, thereby affecting social security contributionsand end-of-service benefits. Much remains to be done to develop bonus schemes that reflect individual contribution (both above and belowThese changes have been a repercussion of the protests expectations) and to communicate these schemes toand demonstrations in many Arab countries since early employees so that the mechanisms and the success2011, which represent the voice of the people who were criteria are equally understood. Indeed, there will be ademanding government reforms and better welfare. requirement to focus more attention on explaining rewardHowever, the increases in pay have had a direct impact on policies and mechanisms in general and to helpthe economies of these states which has led to pressure employees understand how these are applied in practice.on inflation and a knock-on effect on the private sector. Finally, in an environment where the recent rates ofCHANGES TO REWARD MANAGEMENT salary inflation may not prove to be sustainable over theOrganizations in most of the states now face a serious long term, employers will increasingly need to focus onchallenge of pay inequity due to salary increases for the the intangible elements of total reward if they are tonational population in their workforce. They are now build a compelling value proposition, which enablesfaced with demands by employees in other sectors and them to compete for and retain scarce talent.private institutions to match the pay adjustments madeby the public sector. FUTURE GROWTH From a recent ‘Hay Group Middle East Flash Survey’, c. aCertain multinationals have considered moving their third of the organizations surveyed in the Middle East areoperations away from the countries most severely affected looking at expansion in revenue growth in the comingby the Arab Spring for their expatriate employees’ safety. year, indicating a change from the sombre atmosphere of early 2011. They have forecast a healthy 5-15% revenueEmployees are seeking an improvement in the benefits increase compared with global organizations. FIGURE 1typically provided by the employer, such as health care, above highlights the 2012 pay forecast from the responsesinsurance, loans and children’s education. Organizations received from 1,500 organizations in 11 countries. It isin some countries have succumbed to this pressure and clear that salary increases will outpace inflation.implemented changes to their pay and benefit policies.There is a growing trend in such organizations to manage All countries in the MENA region are forecasting afixed salary cost by introducing variable performance- modest-to-healthy increase in salaries in 2012, althoughbased incentives, which are competitive and only paid to this varies depending on inflation rates. Fromdeserving employees based on a robust performance government initiatives in the Gulf countries to recruitmanagement system. Some are taking steps to become nationals, to revisions in pay and benefit policies inmore transparent about their performance management North Africa, to salary reforms in the Levant, all thesesystems by involving employees at the annual target- have an impact on pay. A combination of civil unrest andsetting stage and indicating how their performance could legislation means many changes still lie ahead forearn a higher bonus at the year end. Several organizations compensation and benefits in the region. Ωare looking at reviewing salary scales annually in order tobe competitive in attracting and retaining employees.There will be several key challenges for organizations in * £1 = L£xx.xx; €1 = L£xx.xx; US$1 = L£xx.xx as atthe years ahead. Government-initiated across-the-board 10 February 2012 Benefits & Compensation International • MARCH 2012 • 13