Western style benefits on rise in Middle East
24th April 2008, 0 comments
Western style pay and benefit practices are on the rise in the Middle East, according to a new study by Mercer. The survey showed the traditional focus on high basic salaries and cash allowances are shifting towards long-term incentives and 'protection' benefits. Lifestyle benefits are also on the increase.
These changes in benefit practices are being driven by the continuing increase in multinational companies based in the region. For example, some 85 percent of Dubai's population is now expatriate.
The change in pension practices, in particular, is driven by workforce mobility as many expatriates are now choosing to stay long-term or permanently relocate. Expatriates in most of the Gulf States have no statutory entitlement to local state pensions, and local job moves generally result in the loss of membership of their home country pension plan.
Commenting on particular developments in the United Arab Emirates (UAE), Yvonne Sonsino, a worldwide partner in Mercer's international consulting group, said: "The recent relaxation of UAE employment law has made it easier for expatriates to move jobs in the local market. In the past, expatriates would commonly stay for three-year assignments and then return home. Now many are choosing to move on more quickly to other positions in the region."
Sonsino adds, "With the current intense competition for local talent, many companies are now looking to provide top-up pension plans to help attract and retain employees." While only 8 percent of multinational companies surveyed currently provide a supplementary pension plan in the UAE, 65 percent said they are looking to change their benefit provision.
Ms Sonsino added: "The UAE does not impose salary caps or tax restrictions to act as restraints on the design of local pension plans. This effectively gives us a blank sheet of paper for introducing new plans, and a lot of flexibility to be creative in meeting the needs of particular clients.”
New law proposed
A proposed new pension savings law in the UAE could have an important impact on expatriate pension provision. According to recent reports, the General Authority for Pensions and Social Insurance is studying options to bring expatriates in the public and private sectors under the national pension scheme. Ms Sonsino commented: "Such a scheme would particularly benefit unskilled members of the UAE's expatriate workforce who may not fall under multinationals' supplementary pension plans.
"An enormous challenge will be to make the administration of this plan workable. This includes keeping track of the country's huge and geographically diverse expatriate population, and ensuring their money can be successfully repatriated once they return home. It will be essential to get this right in the eyes of the international business community," she said.
The UAE's national health service used to be free to all UAE nationals but this is no longer the case. In addition, private sector companies in certain locations such as Abu Dhabi and the free trade zones must provide all their employees and families with a private medical plan. Consequently, the majority of multinationals in the UAE (85 percent) provide a supplementary medical insurance policy.
Callum Burns-Green, a principal in Mercer's international consulting group, commented: "There is still some uncertainty about further expected legislative change that could have an impact on medical benefits in the UAE. Most companies pay the entire cost of medical insurance but we anticipate this will change with an element of employee cost-sharing being introduced."
"Many employers are motivated to focus on benefit provision, not only to respond to competitive pressures but also the erosion in value of cash-based remuneration paid in local currencies which are pegged to the weakening US dollar" said Mr Burns-Green.
Almost all companies in the Middle East provide additional perks as well. These vary between countries and employers, but the majority provides allowances for housing, schooling and flights home. In the UAE specifically, 86 percent of multinationals in the survey provide housing allowances, while 90 percent provide support with schooling. All participants, without exception, provide allowances for return flights to expatriates' home country.
A company car benefit is also commonly provided (60 percent of survey participants), while there has been an increase in demand for protection benefits such as death and disability.
Throughout the region, the most popular fringe benefits are long-service awards, mobile phones, social allowances and subsidised health club memberships.
Mr Burns-Green added: "We've noted that fewer companies provide meal allowances, domestic assistance and hardship allowances. On this last point, relocation to the Gulf region today is viewed much less as a hardship placement than in the past."