Employers get generous to retain valued staff

The desire to retain their employees and attain a competitive edge is prompting many Gulf employers to pay more than the statutorily stipulated end-of-service benefits to their employees, a latest survey has shown.

More than one-third of the employers are also providing retirement or savings plans for their employees.

According to a survey by benefits consulting firm Towers Watson, 42 per cent of the employers are offering enhanced end-of-service gratuities or benefits to some of their employees. Most did so by offering additional years' service to the statutory employee benefit formula.

Apart from it being the local best practice or an industry best practice, contractual promise and competitor pressure are among the common reasons for offering higher than the statutory end-of-service benefits, the survey, that involved 106 organisations from the region, showed.

"Employers are paying more as a way to retain high- value employees, who may also happen to have a significant number of years' service with the organisation. Some, commonly multinational, employers have made discretionary enhanced gratuity payments to those who have been recently made redundant, which was probably more a reflection of the paternalistic benefits philosophy of the parent organisation," Iain Collins, Senior Consultant at Towers Watson, told Emirates Business.

The global economic situation was also a reason for employers to make some discretionary enhancements to redundant employees even as it was not the sole reason.

"Some of the discretionary enhancements were made to redundant employees as a result of the crisis too even as there is no evidence to suggest that organisations are enhancing gratuities solely as a result of the crisis," said Collins.

The survey also revealed that 34 per cent of employers now provide a retirement or savings plan for their employees. These are either open to all or to specific job categories such as the top management and are commonly established in addition to mandatory end-of- service gratuities rather than instead of them.

Statutory end-of-service gratuities for expatriates provide for only a relatively small fraction of an employee's income as a percentage of final pay after a full career – known as the replacement ratio – and on their own are unlikely to provide sufficient income in retirement. For example, the ratio is below 20 per cent in the UAE whereas it reaches almost 80 per cent for UAE nationals within the social security system, according to Towers Watson.

Offering enhanced benefits is also due to the need to retain high-value employees, said Collins. "It is the need to retain high-value employees as opposed to employees more generally. These employees can usually find another job easily and are more difficult for an organisation to find and recruit. Therefore, organisations will try to keep the good employees they have by a number of means, including enhancing benefits."

"For someone with a significant number of years' service, any enhancement to the gratuity formula can add considerable value to the final payment, providing a good financial incentive to stay with an organsation. By definition, organisations would wish to keep those employees who offer the most value to an organisation. If an organisation does not succeed in retaining its high-value employees, then its competitors might well be gaining by recruiting them," he said.

Sixty-seven per cent of those organisations that provided enhanced service benefits do so for all their employees, while 25 per cent provide them for specific job categories only. Of those that provide enhanced benefits for specific job categories, the most common categories noted were top management, general management and professional and clerical, according to the survey.

Most organisations accrue for their end-of-service gratuities within the business, with any surplus assets going back into the business. Of these, 77 per cent settle employees' end-of-service gratuities as they become due from cash accrued through their financial statements, but a significant minority – 16 per cent – does not accrue for end-of-service gratuity liabilities at all, the survey said.

Collins said: "The insurance and savings markets in the GCC are evolving and now there are pension and savings vehicles that now cater to funding end-of-service gratuities and these may prove to be increasingly popular in the next few years.

"Financial institutions have also developed specific investment products that can provide local organisations with creative and low risk structures that can be used to fund end of service gratuities."

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