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Pay Increases ‘Holding Steady’ in Saudi Arabia

Middle East : 07 September 2012

Source: Arab News

JEDDAH: The impact of Nitaqat is increasingly evident in private sector salaries in the Kingdom, according to industry experts.

Hay Group released its 2012 Saudi Arabia Compensation and Benefits study yesterday which found that the average salary increase is holding steady tracking just below inflation.

Hay Group said 340,000 employees from 356 companies in 17 industry sectors are included in this year’s study which reports that salaries in Saudi Arabia have risen by 3.8 percent over the last 12 months, and that organizations are forecasting a higher increase of 5.6 percent in 2013 in order to offset inflation.

The picture is fragmented with more variation between employee groups than we have seen in previous years, says Hay Group’s Wendell D’Cunha.

“Private sector organizations are recruiting more nationals and we see high premiums for nationals, especially when they enter a specialist field which is where the critical shortage of national talent lies,” said D’Cunha.

“Within the basic pay rise of 3.8 percent there are three key trends, so we should be cautious in looking at the average. One trend is the expanding salary gap between nationals and non-nationals, the second is that national new hires are receiving the largest pay increases, and the third trend is an increase in the proportion of salary that is a performance based bonus,” he added.

Hay Group’s report finds that nationals now receive 17 percent more than the market average, whereas in 2011 nationals received 13 percent above the market. Non-nationals now receive 4 percent below the market average. D’Cunha says this is a trend that is set to continue.

“The widening of this gap can be attributed to a combination of the efforts of Nitaqat and a talent shortage in certain functions and industries. In 2013 we expect to see more demand for nationals with specialist skills such as finance, IT, HR, engineering and production. Fifty-one percent of our participating companies told us there is a scarcity of candidates.”

From the report it is evident that Nitaqat is succeeding in encouraging the recruitment of nationals into the private sector. What’s more, on average, Saudi new joiners are paid a 19 percent premium. Non-nationals are paid an average of 5 percent below the market on joining an organization.

D’Cunha said: “Private sector organizations are recruiting more nationals and we see high premiums for nationals, especially when they enter a specialist field which is where the critical shortage of national talent lies.”

When it comes to performance, the leadership and management teams of private companies are keen to cultivate a performance culture, but employees state they see little improvement. Hay Group reports that between 2007 and 2012 there has been little change in the number of employees who believe that the better their performance is, the better their pay and opportunity for advancement will be. In 2009, 46 percent of employees in Saudi Arabia felt their performance was reflected in their pay and career progression, in 2011, 42 percent did.

D’Cunha commented: “In Saudi Arabia, the proportion of an employee’s package that is performance based bonus has doubled from 4 to 8 percent since 2010, even more so at the senior level. This demonstrates that senior leadership are bought into the idea of pay for performance but somehow, that is not filtering through.” He added: “This suggests a gap between performance management policy and the understanding of its implementation. It also suggests there are cases where there is a gap in communications and employees are feeling the impact of this disconnect.”

This is in contrast with an improvement in the Middle East region as whole; elsewhere Hay Group finds that employee opinion on the link between performance and professional progression is becoming stronger.

D’Cunha believes the employee opinions are also part of a wider appetite for changes in the workplace: “In most societies in the GCC we are witnessing changing expectations among citizens who expect fair treatment, more transparency and open two-way communication. Employers that understand the implications of these changes and demonstrate their understanding, by visibly responding to changing expectations, will win the race to recruit and retain the best talent.”

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