The implications of the Arab Spring for Compensation and Benefits

1. The Implications of the Arab Spring
for Compensation and Benefits
Warren 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 •

2. 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
Country
have been announcements of an extra subsidy of salary increases have done little for the development of
US$550 million. Lebanon is in the process of reviewing its the performance culture in those organizations. In the
minimum wage and allowances and an amendment to the future, as annual salary review budgets revert to
labour law has been put forward by the Cabinet. If the law something closer to inflation, there will be a need to
is passed by Parliament, minimum wages will increase to introduce carefully considered salary review
L£ 675,000* and the daily transport allowance and management processes to ensure that salary increase
education allowance will also be increased. Debate is rife budgets are allocated in a fair and justifiable manner
as to whether the allowances should be incorporated into that is consistent with employee performance.
basic salary, thereby affecting social security contributions
and end-of-service benefits. Much remains to be done to develop bonus schemes that
reflect individual contribution (both above and below
These changes have been a repercussion of the protests expectations) and to communicate these schemes to
and demonstrations in many Arab countries since early employees so that the mechanisms and the success
2011, which represent the voice of the people who were criteria are equally understood. Indeed, there will be a
demanding government reforms and better welfare. requirement to focus more attention on explaining reward
However, the increases in pay have had a direct impact on policies and mechanisms in general and to help
the 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 of
CHANGES TO REWARD MANAGEMENT salary inflation may not prove to be sustainable over the
Organizations in most of the states now face a serious long term, employers will increasingly need to focus on
challenge of pay inequity due to salary increases for the the intangible elements of total reward if they are to
national population in their workforce. They are now build a compelling value proposition, which enables
faced with demands by employees in other sectors and them to compete for and retain scarce talent.
private institutions to match the pay adjustments made
by the public sector. FUTURE GROWTH
From a recent ‘Hay Group Middle East Flash Survey’, c. a
Certain multinationals have considered moving their third of the organizations surveyed in the Middle East are
operations away from the countries most severely affected looking at expansion in revenue growth in the coming
by 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% revenue
Employees are seeking an improvement in the benefits increase compared with global organizations. FIGURE 1
typically provided by the employer, such as health care, above highlights the 2012 pay forecast from the responses
insurance, loans and children’s education. Organizations received from 1,500 organizations in 11 countries. It is
in 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 a
fixed salary cost by introducing variable performance- modest-to-healthy increase in salaries in 2012, although
based incentives, which are competitive and only paid to this varies depending on inflation rates. From
deserving employees based on a robust performance government initiatives in the Gulf countries to recruit
management system. Some are taking steps to become nationals, to revisions in pay and benefit policies in
more transparent about their performance management North Africa, to salary reforms in the Levant, all these
systems by involving employees at the annual target- have an impact on pay. A combination of civil unrest and
setting stage and indicating how their performance could legislation means many changes still lie ahead for
earn a higher bonus at the year end. Several organizations compensation and benefits in the region. Ω
are looking at reviewing salary scales annually in order to
be 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 at
the years ahead. Government-initiated across-the-board 10 February 2012
Benefits & Compensation International • MARCH 2012 • 13