Salaries in the region likely to remain flat in near term

Salaries in the Gulf are expected to remain flat in the near term given the market conditions, said a new report.

According to recent report by GulfTalent.com, a regional recruitment portal, there will be no upward pressure on salaries as rising unemployment worldwide is leading to limited competition for talent in the region.

"Increased unemployment in source countries has made many more professionals interested in working in the Gulf," said the report. The findings highlight that domestic opportunities available in countries such as Canada, the UK and Australia, (supplying talent to the Gulf) have become fewer and more competitive.

Moreover, a slowdown in the regional economy is putting further downward pressure on employee demand, which is in turn squeezing pay scales.

At the same time, there is a growing interest in the Gulf as an alternative destination for work coupled with the low level of inclination of expatriates in the Gulf to return home in the current environment.

Salaries are also expected to remain at the current levels owing to lower levels of inflation across the region, which played a big role in salary hikes last year. "Double-digit inflation of recent years has given way to stable or falling prices," said the report.

Rents have fallen in many cities. There has been a 20-40 per cent fall in Dubai and Doha. Food prices have been stable or are falling, due to drop in global food commodities, a complete reversal of 2008 trends.

Consumer goods have also seen a fall in prices due to falling cost of imports and the strength of currency.

Strong currency has also helped in easing salary pressures. "Gulf currencies, which are mostly pegged to the US dollar, have appreciated sharply, increasing the value of expatriates' salaries."

The value of most expatriates' compensation packages has increased sharply in terms of their home currencies, giving them an effective pay rise of five to 20 per cent compared to last year, claimed the report.

Despite limited pay rises in the given environment, some expats are seeing their saving potential increase relative to last year. The winners (the ones with potential savings) are those living in cities with rapidly falling rents such as Dubai and Doha and come from countries with weakening currencies such as UK, Australia and euro zone.

Compared with the US dollar, the Australian dollar has appreciated 20 per cent, Indian rupee by 13 per cent, Canadian dollar 14 per cent, euro 12 per cent and British pound 21 per cent, when a 12-month period to June 30, 2009. is taken into consideration.

Mostly fixed salaried earners, for example, accounting and administration staff, are in a better position to save. The losers, on the other hand, are those residing in cities with relatively strong real estate markets (e.g. Abu Dhabi) and coming from countries with stable currencies against US dollar (e.g. South Africa). People working mostly on commission/variable pay (e.g. sales staff) will see a net decrease in saving potential, deduced GulfTalent.com.

The short-term outlook may not look good for the employees. While job losses appear to have slowed down, recruitment activity in the short-term is likely to remain slow, said the report. There will be more regulatory pressure on companies to hire nationals as more young nationals enter the workforce, with too few jobs to accommodate all of them, the report said. Pay rises over the next 12 months are expected to be minimal.

Further, more job cuts are expected among multinationals undergoing restructuring and some job cuts may happen among regional firms undergoing merger and consolidation.

However, green shoots of stabilisation are being witnessed among regional companies. The one good thing to note and something that brings relief to most expats in the region is that their saving potential is to remain stable, due to low inflation, but subject to movements in US dollar and pay structure (fixed versus variable).

Though the short-term outlook may not be good, the future does seem bright. Economists expect the region to return to healthy growth next year directly impacting employment. The report said employment activity is expected to recover from early 2010.

Recruitment volumes may not return to boom levels for some time and the speed of recovery will depend largely on global trends, particularly the price of crude oil.

The economic growth forecast for 2010 is the best for Qatar at 23.5 per cent, followed by Kuwait (4.4 per cent) and the UAE (4.2 per cent), as per the Economist Intelligence Unit figures, quoted in the report.

However, the wait may seem a long time for employees who are going though harsh measures adopted by their companies.

"With demand for talent shrinking, the balance of power has shifted from candidates to employers," said the report.

The weak economy is leading to job cuts, increased work pressure and pressure on pay.

According to the recruitment company, cuts are most visible across the region, with the highest concentration in Dubai, as the emirate had maximum exposure to foreign money and was the most diversified economy in the region.

The economic crisis has also affected top management. Each section of companies/businesses are being affected by pay cuts, according to the findings of GulfTalent.com.

With lesser number of staff on the rolls, the existing staff are being made to put in more working hours. Mandatory relocation to less popular destinations, sharp cuts in training budgets, no pay increase, some reductions in allowances and hiring new recruits on lower pay than peers are some of the other ways to reduce costs by companies, according to the GulfTalent.com research.

Many expatriates are returning home following redundancy, adding to unemployment in their countries.

The exodus has been accelerated by government rules allowing expats maximum 30 days stay in the country after termination.

Key countries that are affected by the crisis in the region are India, Egypt, Jordan and the Philippines due to their high populations of expatriates in the Gulf.

The nationals of the region seem to fare better than expats as some Gulf governments have taken action to minimise the impact of corporate redundancies on their people.

Companies downsizing are advised to start with expats. There is a ban on terminating employment of UAE nationals. Significant increase has been seen in Kuwaitisation targets for banks and there is pressure on firms receiving government assistance to hire more Kuwaitis. There are also plans to impose mandatory compensation for Kuwaiti employees being laid off.

Even in Saudi Arabia, the private sector has been warned against using the crisis as pretext to fire Saudis. One trend coming out of the crisis is low employee turnover.

"With fewer opportunities and rising concerns about job security, staff turnover has fallen significantly across the region," said the report.

From a candidate's perspective, job search has become much more challenging. There is concern about the risk of 'last-in first-out' in the event of downsizing and concern that any sign of disloyalty to existing employer may lead to loss of position is rampant.

There is a growing tendency to hold on to a secure job, rather than actively searching for better opportunities, unless believing that current employer is in financial trouble, according to the report.

From an employer's perspective, the downturn has reduced recruitment activity by employers, as well as changing the way it is conducted.

Within the region, Dubai's share of regional recruitment activity has fallen while Abu Dhabi, Qatar and Saudi Arabia have seen a relative increase.

More expatriates are exiting the UAE and Bahrain than last year. However, the desire to leave the UAE remains the lowest in the region, it said.

As far as different jobs are concerned across the region, demand for investment, administration and marketing professionals has seen the biggest fall.

Higher government spending in infrastructure projects across the region appears to have increased the demand for related skills. More recruitment activity is being focused on mid-level and senior professionals.



Excessive lay-offs may lead to problems

Companies in the Europe and Middle East region are currently so focused on cutting costs through layoffs, salary and hiring freezes, that they may be setting themselves up for problems in the medium term, according to research from consultants Watson Wyatt.

The firm's survey of 200 companies from across Europe and the Middle East found that 43 per cent (52 per cent of UK companies) have taken action to reduce permanent workers. Most have also sought to hold down pay, with more than 70 per cent looking to reduce their budgeted pay increases in response to the current economic climate.

"These are clearly sensible measures in these uncertain times but our concern is around how companies appear to be using their limited pay budgets," said Carole Hathaway, European head of strategic reward consulting at Watson Wyatt.

The survey found that less than a third of companies are targeting their reward budget on key employees. Moreover, where this is happening, the focus appears to target only high performers rather than those with business-critical skills.

"Despite a majority of companies claiming to have a greater focus on their key talent, few are supporting this by actually targeting their reward spend on them," said Hathaway.

"Top performers are not necessarily the same as those with business-critical skills. Few companies appear to have the reward and performance programmes that enable them to make this important distinction. But failure to reward adequately those with business-critical skills – as well as high performers – can have implications on retaining these key workers when the economy recovers."

The survey, which was conducted in mid-June, found that companies have increased their levels of communication. "While companies are stepping up their communication on the wider business situation, they should put more specific attention on communicating changes made to pay policies, even if that's not going to be good news," said Hathaway.


Click here for survey results.

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