Inflation and talent shortages drive up salaries, but pay rises may ease with influx of Western expatriates following global downturn
Private sector salaries in the Gulf region increased at an average rate of 11.4% over the last year, according to figures released by GulfTalent.com.
In its fourth annual survey of salary trends in the region entitled “Gulf Compensation Trends 2008”, GulfTalent.com revealed the following increases in basic salary by country, over the twelve-month period to August 2008:
The UAE and Qatar topped the list of pay rises with increases of 13.6% and 12.7% respectively. This was followed by Oman at 12.1%.
Bahrain came fourth at 10.5%. Kuwait and Saudi Arabia once again came at the bottom, with average rises of 10.1% and 9.8% respectively, though still high by historical standards.
All six markets saw pay increases accelerate relative to last year. The majority of these, however, are still below the forecast rates of inflation for 2008, suggesting diminishing net disposable incomes as pay rises fail to keep up with rising cost of living.
A notable exception is Bahrain, where the average salary increase of 10.5% is marginally higher than the 9.0% inflation rate forecast for the country this year.
Across the region, the frantic pace of growth in the construction and energy sectors escalated demand for engineers, who received the biggest average pay rises. This was followed by finance professionals in second place, largely due to the rapid expansion in the banking sector.[See full report ]
According to GulfTalent.com’s study, pay rises were driven by a continued shortage of talent across most sectors, as well as the spiralling cost of living, particularly in residential rents. Following global trends, food prices have also soared this year, helping bring double-digit inflation to virtually all the Gulf states.
Other contributing factors highlighted in the report include large pay hikes awarded to government employees, as well as rising salaries in India, the Gulf’s main source of expatriate professionals.
The weakness of the US currency until a few months ago is cited as another factor driving up wages for much of the year, with several companies introducing formal exchange rate protection in the compensation packages of their expatriates. The pressure has subsided, however, following the sharp rise in the value of the US dollar over the last few months.
Kuwait appears to have benefited from its decision to unpeg its currency from the US dollar. With the Kuwaiti dinar rising by 8 percent against other Gulf currencies, Kuwaiti salaries have become more attractive for expatriates relative to its neighbours.
According to the report, the region’s ongoing war for talent is forcing employers to adjust, not only their salaries, but also their working practices.
In a major new trend, 2008 has seen a large number of companies with six-day working weeks, including many in construction and retail sectors, switch to shorter five-day weeks in an effort to improve staff retention. The trend is expected to continue towards further consolidation of the five-day week, bringing the region into line with much of the rest of the world.
Another common trend is the emergence of pay disparities between new and existing employees. Several employers surveyed by GulfTalent.com reported offering higher packages to new hires than those received by existing staff in similar roles, as firms struggle to attract talent in a tight market. The disparities are causing significant tension among employees, sometimes leading to further attrition, requiring yet more recruitment at higher pay, the report said.
Most human resource managers surveyed by GulfTalent.com reported aggressive recruitment targets over the next 12 months, and the majority expected 2009 salary increases to be similar to those in 2008.
According to GulfTalent.com, this is consistent with the current fundamentals of the economy – with the oil price still at historically high levels, inflation rampant across the region, and salaries in India so far continuing to experience double-digit growth despite the global slowdown.
The study cautioned that beyond the next few months, the upward pressure on pay rises may start to ease - depending on the strength of the US dollar, the depth and severity of the expected downturn in Western markets, and the extent to which the downturn spreads to developing economies, including India.
Given the current economic gloom prevailing in the US and Europe, the report highlighted the possibility of a flood of Western-based professionals to the region, including those of Arab or Muslim origin, on a scale not seen since the post-9/11 influx. The employers’ ability to benefit from this trend would vary, however, depending on their sector of activity, their location within the region, and the management’s ability to attract and absorb a Western talent pool, the report said.
GulfTalent.com’s study was based on a survey of 29,000 professionals in the six countries of the Gulf Cooperation Council (GCC), as well as interviews with regional business leaders and human resource managers. The survey was conducted between 15-30 September 2008.