Banks under pressure to raise salaries to retain staff

Debabrat Mishra, Consulting Business Leader at Hewitt.

Salaries of professionals in the UAE's banking sector are expected to increase by 11 per cent in 2008-2009 to keep up with inflationary pressures and the increasing demand for qualified staff, say experts.

Debabrat Mishra, Consulting Business Leader at Hewitt Middle East, said salaries of banking and finance professionals across the Gulf were expected to increase between nine and 11 per cent.

The UAE would lead the way at 11 per cent followed by Bahrain and Qatar in the range of nine to 10 per cent.

"Shortage of talent, rising rents and cost of living, dollar depreciation and sharp increase in public sector salaries has led to a consistent rise in salary levels across the banking sector in the Middle East," he added.

"The increase in the UAE banking sector is not surprising given the continued levels of economic activity and the accompanying inflationary costs.

"This is highlighted by the fact that average rent as a proportion of household income is a staggering 30 per cent to 35 per cent. There is also increased focus on the financial services sector and a continued shortage of skilled professionals."

Hewitt Middle East is a division of global management consulting company Hewitt Associates, which conducted the research.

However, human resources officials in UAE banks and recruitment agencies said the projected 11 per cent average may not apply to all parts of the sector. They believe some highly qualified professionals may receive more than 30 per cent increase due to a number of factors.

They cited fierce competition among local and international banks working in the country as a major factor behind the continued increase in salaries of banking professionals.

This competition is a result of the high level of growth in the country, which requires local banks to expand at the same rate by hiring well qualified professionals instead of training new graduates.

Mishra expects that the next two to three years will witness a shift towards global best practices, leading to the emergence of new trends. "The Middle East and Asia-Pacific will increase variable pay components in total compensation for top and senior management in banks," he said. "There will be a year-on-year increase in the variable pay component vis-á-vis guaranteed cash.

"The Middle East will witness increase in the prevalence of long-term incentive (LTI) schemes. Earlier LTI schemes were mostly limited to financial companies but the trend is changing with many local banks adopting these incentive schemes to attract and retain employees. The region will see increasing trend towards differential market positioning for average and top performers. Currently there is a performance divide of one to four between average performers and top performers in the banking industry.

"This trend will gain increasing favour among banks in the UAE and the whole Middle East. Overall, banks will continue to adopt best practices of developed financial markets. This will gain further momentum as banks and financial institutions enhance their focus and ability to attract talent from more mature economies."

He said current global reward philosophies in the banking sector were influenced by individual countries and regional cultures and by the extent of evolution that the financial services sector has undergone in the country or region. This was reflected in the target bonus payout of 35 per cent to 45 per cent in the United States compared with 20 per cent to 30 per cent in the Asia-Pacific region and 10 per cent to 20 per cent payout in Middle East banks.


Despite the shortage of UAE national professionals in the banking sector – especially in higher positions – Emirates NBD Bank could achieve a breakthrough by employing 100 per cent Emirati branch managers.

Husam Al Sayed, general manager of human resources at the bank, said around 30 per cent of the 7,500-strong workforce were UAE nationals.

"Emirates NBD has set a clear strategic goal of increasing this percentage through attracting and developing young talent to take local banking to the international level. We are aiming to reach a 35 per cent UAE national workforce by the end of 2008 and 40 per cent by the end of 2009."

He said the bank has established the Emirates NBD Academy, which trains and develops talents and skills of young UAE nationals and provides them theoretical and practical training programmes that qualify them to fill different positions in the group.

"We have programmes designed to create a pool of talented nationals qualified to become head tellers, team leaders and supervisors to overcome the shortage of national professionals, especially in higher positions. Emirates NBD is growing at a rapid pace and our expansion strategy is driving us towards putting more efforts to attract, train and retain talented staff."

Al Sayed said several factors would affect the expected salary increases.

"The most important one is the inflation rate. In addition, the high demand of human resources and the scarcity of qualified and experienced individuals will have an impact. Another major factor is the emergence of new players in the banking and finance industry, which is increasing the level of competition between UAE banks to retain their talented staff."

Al Sayed expects high demand for professionals in investment banks and private banking due to the rapid development of these areas.


Shortage of talent

Financial services organisations in the UAE are expected to hire more than 50,000 professionals over the next three years, according to Hewitt's estimates.

"The UAE's banking sector is currently poised to see tremendous growth and could become a leading global hub," said Mishra. "This would happen if the banking sector focuses on several issues to ensure their leadership.

"UAE banks will need to get their talent supply chain aligned to their growth agenda. This would require them to forecast correctly, identify sources of talent, acquire them and prepare them for deployment within the organisation. And it would require banks to re-evaluate how the human resources function is organised in order to deliver the talent supply chain requirements."

Growth is expected across all segments – capital markets, investment banking, retail banking, insurance – and in particular Islamic banking and financial services. It is expected that there will be tremendous increase in Islamic banking services during the next few years.

Mishra said the UAE banking sector was grappling with the challenge of attracting and retaining talent in adequate numbers. It had been observed that when the focus was on numbers there was a natural tendency to gravitate towards reduced performance differentiation.

"It will be important for the banking sector to guard against this and to increase the rigour around performance differentiation. In the absence of performance differentiation, the sector will tend to lose high performers at a rapid pace."

He cited another issue – the need for UAE banks to move beyond compensation and rewards as tools for attracting and retaining talent.

"In periods of high growth the leadership, bandwidth will become a critical challenge. It will become increasingly important for UAE banks to identify future leaders and prepare them for enhanced roles and opportunities.

"Banks should start establishing programmes for identifying future leaders and grooming them for the role. This will enable banks to manage the expected growth by having a ready talent pool."

He said that while growth policies were driven by a combination of the need for talent and a booming economy, investment was needed to generate talent locally.