Regional growth is driving headcount and higher salaries, which has put pressure on CFOs and HR heads, reveals a study report issued by SEI.
The results of the second annual survey published by SEI titled "Employment Trends and Managing End of Service Benefits in the Middle East," reveals that companies continue to pay greater attention to the End of Service Benefit (EoSB) liability accruing on their balance sheet, and are keen to explore alternative ways to align those funds to support CFO and HR objectives of improving performance and productivity of their employees.
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The survey focused primarily on the UAE, where the majority of respondents (77 percent) were based, although the rest of the GCC was better represented than last year. The survey shows very strong business confidence in the region, with 86 percent of survey respondents planning to increase their headcount over the next three years, and this confidence is particularly strong with small companies (<200 employees) with 55 percent planning to grow headcount by more than 10 percent.
The survey further analysed the potential impact of the Expo 2020 on UAE businesses. With six years to go, and plans for the Expo 2020 only just beginning to roll-out, 45 percent of the UAE respondents expect a positive impact on their growth.
The employment trends revealed in the survey have meaningful implications for the employer EoSB accruals, as increasing headcount and rising salaries further increase the EoSB liability. The report shows a continuing trend that employees are staying longer with their employers, resulting in a greater percent being eligible for higher EoSB payout. Coupled with other cost increases, such as housing and schooling, CFOs are under pressure to manage the costs in order to maintain profitability.
In turn, this pressure has translated into HR Executives being challenged to find more innovative ways to recruit and retain top talent versus the historical approach of increasing base salaries and cash bonuses. This is highlighted by 63 percent of respondents selecting Employee Performance and Productivity as an HR objective.
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By GlobalDataDespite these pressures, the survey finds that many companies are not leveraging and managing their EoSB liability effectively. The report also shows EoSB under-utilised as a retention tool, with only 7 percent of respondents using their EoSB for retention purposes, despite 37 percent higher retention (over three years) at companies with enhancements to the EoSB or Matching Savings plan (80 percent of schemes offering plans versus 58 percent of schemes offering neither as a retention tool). However, there is clear evidence that there is a growing appreciation of the benefits of using EoSB more effectively to generate loyalty in employees, with 46 percent of respondents stating that they are interested in an EoSB or Savings scheme, while 36 percent would consider outsourcing management of their entire EoSB scheme.
Commenting on the results of the survey, Jahangir Aka, Managing Director of SEI Investments (Middle East), said:
"Businesses are clearly under pressure to balance the pressure of growth and profitability. The rising costs of housing and staff are forcing companies to shift away from traditional methods of reward, which have been based primarily on cash bonuses, to more creative alternative approaches. EoSB is one of the largest payments to employees, yet in most companies it is under-utilised for attracting or retaining. It is often not even highlighted as a core component of total reward. In other parts of the world stock options are utilised as deferred bonuses, but these aren’t available to many in the Middle East."
The survey, conducted in May and June 2014, was completed by 142 senior executives from local and international companies in the GCC. Some of the survey participants are clients of SEI.
