Western Style Pay & Benefit Practices on the Rise in the Middle East

Total reward practices are undergoing change in the Middle East, according to a recent survey of benefits and HR practices conducted by Mercer.  The survey covers seven countries (Bahrain, Egypt, Israel, Kuwait, Qatar, Saudi Arabia and the UAE), over 500 benefit plans and 61,000 employees.

Survey results indicate that the region's traditional focus on high base salaries and cash allowances is shifting towards long-term incentives and "protection" benefits like pensions and medical, life and disability insurance.

According to Mercer, the changes in benefit practices are being driven by the continuing influx of multinational companies to the region, an expansion of the expatriate workforce (some 85% of Dubai's population is now expatriate), and the greater mobility of expatriates between jobs.  In the United Arab Emirates, legislative changes have also fueled the trend.

Some outtakes from the survey:

Retirement benefits - 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. This has prompted an increase in employer-provided supplementary benefits.

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 - including setting up supplementary plans. These plans are generally established on a defined contribution basis through offshore investment funds that are often associated with international pension plans.

Medical benefits - 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, usually through an insured arrangement.

There are also mandatory requirements for private healthcare in Saudi Arabia and Egypt but the majority of multinational companies in the Middle East (80 percent) provide private medical benefits irrespective of these requirements.

Other benefits - Almost all companies in the Middle East provide additional perks and allowances to their expatriates. These vary between countries and employers, but the majority provide allowances for housing, schooling and flights home.

A company car benefit is also commonly provided (60 percent of survey participants across the Middle East). Throughout the region, the most popular fringe benefits are long-service awards, mobile phones, social allowances and subsidised health club memberships.

Complementary Global Compensation Planning Report Available

Towers Perrin has made its 2008 Global Compensation Planning Report available free for the downloading.  The report, which reflects the responses of over 4,000 companies in over 60 countries worldwide, provides information on 2007 and projected 2008 salary movement and key economic indicators such as inflation, gross domestic product increase and unemployment rate.

A wealth of information and a great resource - yours for the taking!

Additional note to this post:  Towers also has this report available in a "tech sector only" version for those in those industries.

A Primer on Delivering Base Pay Globally

More and more HR and compensation professionals are finding themselves in the position of developing and implementing global compensation programs, as their employers expand internationally.  The December 2007 issue of WorldatWork's workspan magazine includes a terrific primer on developing base pay policy in a global environment. While it is certainly important to establish and set all policy in alignment with an overall compensation philosophy, it is also key to understand and account for local practices and influences. 

In the article, author Adam Sorensen provides an overview of some of these critical local considerations, including:

• Government Mandates: Many countries have specific laws that impact the design and delivery of base pay, including minimum salary, standard workweeks, negotiation, employee representation and mandatory communications.  HR practitioners should also keep in mind that, once implemented, some types of rewards can become legally protected entitlements.
• Base Pay Elements:  The definition of base pay varies signficantly by country.  Items such as nondiscretionary bonuses, differentials and allowances for transportation and meals are common elements of base pay in many parts of the world.  Definitions of base pay can also impact other elements of total rewards (e.g., retirement contributions, variable pay, merit increases, etc.) that are linked to base pay calculations.
• Pay Frequency:  In some countries, annual base pay is spread over more than 12 months, which reduces monthly salary payments while allowing employees to collect the remainder in periodic "bonuses."  Such bonuses should not be confused with variable pay or pay at risk because they are considered part of base pay.  Companies should understand how different pay frequencies will impact their salary budgeting and administration practices.
• Pay Progression:  Pay proression practices also vary around the world.  Automatic base pay progression is still common in areas with strong union influence, but pay for performance is becoming more prevalent.  Also, the range spread within a salary grade and/or the difference between grades may be significantly larger or smaller depending on the market practices in a particular country.
• Market Data:  Reliable market data is critical to competitive positioning of base pay.  Unfortunately, the availability and validity of market data varies dramatically worldwide.  While local market data may be available through a variety of formal and informal sources, practitioners should use caution when interpreting and applying the data because differences in methodology may lead to inaccurate conclusions about local market practices.

Worldwide Pay Study Predicts Average Rise in Global Salaries of 6%

Global salaries are expected to rise by an average of 6% in 2008, 1.9% above projected average inflation, according to a study of 62 countries worldwide by Mercer.

According to study results, India can anticipate one of the highest average pay increases in the world at 14.1%, nearly 10% above projected local inflation.  North America and most Western European countries are expected to experience the lowest salary increases worldwide.

In speaking about the implications of survey results, Steven Gross, Mercer worldwide partner and global head of broad based performance and rewards consulting, warned of the perils of short-term thinking as companies contemplate sourcing labor from emerging countries where workforce costs may be low but also volatile:

We are starting to see that short-term cost savings from sourcing labour in emerging markets can evaporate over time.  It is therefore essential for multinational companies to consider both current pay levels and future salary increases when deciding where to source their labour.

Some companies that might otherwise be looking at emerging economies to establish their customer services are now reconsidering their options.  Immediate cost savings are no longer the only consideration, as short-term affordability might be offset by long-term volatility in labour costs and inconsistent service quality in many emerging markets.

The table below features, for select countries, survey data on forecasted 2008 pay increases and projected inflation rates, ranked by projected pay increase after inflation.

Country	Projected average (‘actual’) pay increases	Projected inflation rates	Projected pay above inflation
Europe
Western Europe
Ireland	4.7	2.1	2.6
Switzerland	2.5	1.0	1.5
Spain	3.8	2.4	1.4
France	3.0	1.8	1.2
Italy	3.1	1.9	1.2
Germany	2.7	1.6	1.1
United Kingdom	3.1	2.0	1.1
Netherlands	3.0	2.1	0.9
Eastern Europe
Bulgaria	9.3	4.4	4.9
Turkey	8.5	4.0	4.5
Romania	8.3	5.0	3.3
Slovakia	4.7	2.0	2.7
Czech	4.0	3.1	0.9
North America
United States	3.7	1.8	1.9
Canada	3.8	2.0	1.8
Asia Pacific
India	14.1	4.3	9.8
Vietnam	11.9	6.3	5.6
China	7.5	3.2	4.3
South Korea	6.4	2.5	3.9
Japan	2.5	0.8	1.7
Australia	4.0	2.5	1.5
New Zealand	3.9	2.6	1.3

Source: Mercer’s 2008 Global Compensation Planning Report

Free Web Briefing: The Employee Benefits/Rewards Environment in China

Attention all ye multinationals expanding into China:  Mercer is holding a free web briefing on the employee benefits/rewards environment in China.  The briefing is scheduled for Wednesday, December 12 (14:00 UK GMT, 15:00 Europe CET, 9:00 EST) and will last 1 hour.

Topics covered in the briefing will include:

• An overview of the HR environment in China
• Recent market developments and emerging employee benefits practices among multinationals
• The impact of new legislation from an employee reward perspective

Register and learn more here.

IT Pay Around the World

Pay for IT (information technology) employees is highest in Switzerland and lowest in Vietnam, according to a newly released Mercer survey 2007 IT Pay Around the Globe which compares the total annual cash and total remuneration for IT staff in 35 different countries.

According to the survey, 6 of the world's 10 highest-paying countries for IT Managers are in Western Europe.  Switzerland is tops, followed by Denmark, Belgium and the UK.  The U.S. and Canada are ranked 6 and 8, respectively.  The lowest paid IT employees tend to be those in Asian markets.

Average gross annual total cash compensation for IT Managers in the ten highest paying countries, according to survey results, is highlighted below:

1. Switzerland
   • Local 176,920
   • USD $140,960
2. Denmark
   • Local 722,310
   • USD $123,080
3. Belgium
   • Local 95,380
   • USD $121,170
4. United Kingdom
   • Local 62,180
   • USD $118,190
5. Ireland
   • Local 85,200
   • USD $108,230
6. United States
   • Local $107,500
   • USD $107,500
7. Germany
   • Local 84,020
   • USD $106,730
8. Canada
   • Local 106,000
   • USD $93,860
9. Hong Kong (China)
   • Local 702,720
   • USD $90,340
10. Australia
    • Local 115,480
    • USD $88,850

Average gross annual total cash compensation for IT Managers in the ten lowest paying countries, according to survey results, is as follows:

• Vietnam
  • Local 15,470
  • USD $15,470
• Bulgaria
  • Local 34,250
  • USD $22,240
• Philippines
  • Local 1,106,700
  • USD $22,280
• India
  • Local 1,120,490
  • USD $25,000
• Indonesia
  • Local 289,155,000
  • USD $31,720
• China (Shanghai)
  • Local 265,810
  • USD $33,770
• Malaysia
  • Local 129,930
  • USD $35,260
• Czech Republic
  • Local 791,430
  • USD $35,880
• China (Beijing)
  • Local 285,130
  • USD $36,220
• Argentina
  • Local 133,040
  • USD $43,180

The Role of Job-Content Based Job Evaluation in Establishing Global Equity

A client and a reader's comment, both this week, helped call my attention to a need that is driving renewed interest in job content based job evaluation.

In response to my post When Is Job Content (e.g., Point Factor) Job Evaluation Appropriate?, a reader who heads compensation and benefits for an international company added another situation to my list:  the need for a tool to help structure an entire global organization through comparing jobs across countries in order to create a boundary-less organization.  In his mind, this is a key reason why many global companies are considering the move back to "traditional" job evaluation.

I had a number of discussions this week with a client who has hired me to help the organization figure out whether they should replace their current point factor job evaluation system with a market-based approach.  This company is in the early stages of what will eventually be a significant global expansion.  A senior executive confided to me that their current job evaluation system - for all the troubles it has been giving them in other areas - was absolutely instrumental in setting up a pay structure for a new Asian location where valid local market compensation data was very difficult to come by.

Perhaps globalization will indeed spur a new level of interest in point factor job evaluation.  This is a trend that I will watch with interest.

Global Cost of Living Rankings Released

Moscow retains its place as the world's most expensive city for the second consecutive year, according to the latest Cost of Living Survey from Mercer HR Consulting (download summary news release and top 50 rankings from survey here).  London is in second place (climbing three places since last year's survey) and Seoul is in third (down from second last year).

Mercer's survey covers 143 cities across six continents and measures the comparative cost of over 200 items in each location.

The top ten ranked cities worldwide by cost of living (along with their cost of living index, with New York, USA as the base city = 100, plus their 2006 ranking) are highlighted below.

1. Moscow, Russia (COL Index = 134.4, 2006 Rank = 1)
2. London, UK (COL Index = 126.3, 2006 Rank = 5
3. Seoul, South Korea (COL Index = 122.4, 2006 Rank = 2)
4. Tokyo, Japan (COL Index = 122.1, 2006 Rank = 3)
5. Hong Kong (COL Index = 119.4, 2006 Rank = 4)
6. Copenhagen, Denmark (COL Index = 110.2, 2006 Rank = 8)
7. Geneva, Switzerland (COL Index = 109.8, 2006 Rank = 7)
8. Osaka, Japan (COL Index = 108.4, 2006 Rank = 8)
9. Zurich, Switzerland (COL Index = 107.6, 2006 Rank = 9)
10. Oslo, Norway (COL Index = 105.8, 2006 Rank = 10)

"Real" Pay Increases in U.S. to Lag China, India & Eastern Europe

New research from Hay Group shows that "real" pay increases (pay increases adjusted for inflation) for U.S. workers will substantially lag those in China, India and Eastern Europe in 2007.  According to Hay, U.S. administrative, professional and senior management employees are predicted to see real increases of just 1.4% versus increases approaching 8% in high growth economies.

Some details by region are presented below.  Additional information can be found in the press release, which also provides a link to the Hay 2007 Global Pay Day Analysis Tables (although the link did not appear to be functional today).

China and India

"The wealth created by rapid, focused development is resulting in a pay boom for Chinese and Indian workers, who will enjoy some of the largest real pay increases worldwide in 2007," says Hern Yin Goh, Director of Hay Group Reward Information Services in Shanghai.

Predicted real pay increases for China-

• Administrative workers - 7.9%
• Professionals - 7.8%
• Senior management - 8.9%

Predicted real pay increases for India-

• Administrative workers - 5.9%
• Professionals - 5.9%
• Senior management - 6.9%

Eastern Europe

"Growing pay packets in Eastern Europe reflect continued economic development in the region," said Scott Marlowe, General Manager, Hay Group Czech Republic.  "While wages are growing from a much lower level for manual and administrative workers, pay levels for managers are closer to Western standards.  The lower cost of living in the East means that as the management pay gap closes, senior managers in Eastern Europe enjoy a significantly greater purchasing power than those in the West."

Predicted real pay increases for Bulgaria-

• Administrative workers - 4.3%
• Senior management - 7.8%

Predicted real pay increases for Slovakia and Lithuania, overall, average 5.5% or better

Predicted real pay increases for Rumania, overall, average 3.1%

Managing Global Compensation & Benefits

WorldatWork and Watson Wyatt Worldwide recently partnered to complete a second edition (first was in 2004) of their joint survey Effectively Managing Global Compensation and Benefits, which features the global HR practices of 275 multinational organizations that collectively employ nearly 10 million workers.

Key findings from the survey are presented below (note that WorldatWork members can access the full survey brief online):

• The most common structure for managing HR programs is partial centralization.  More than half of all multinationals (56 percent), however, plan to shift to a more centralized structure over the next two years, up from 42 percent in 2004.
• Two-thirds of multinationals (66 percent) report they have adopted a globally consistent HR strategy.  The strategies of financially high-performing companies tend to focus on outcomes - such as attracting and retaining key talent, linking rewards and results, and developing a common corporate culture - while the strategies of low performers focus on implementation.
• Half of multinational organizations (51 percent) have a formal or informal global total rewards strategy, and another 20 percent plan to develop a strategy within the next 12 to 24 months.  Twenty-nine percent have no plans to do so.  Of those companies that have a strategy, half (51%) also have a strategy for communicating it.
• High performing companies provide more opportunity for above-market compensation.  For example, 25 percent of high-performing firms target total cash compensation at the 75th percentile or higher (versus no low-performing firms).

At bit more detail on the second point above, which addresses the top objectives or focal points of global HR strategies for high versus low performing companies (note that this distinction is based on self-reported, but validated, responses to a survey question regarding the organization's financial performance relative to peers).  Some of the differences are revealing, if not surprising, but it is heartening for me to see that tying rewards to results appears to be a top priority for all respondents!

The top five objectives reported by high performing companies for their global HR strategies:

• Improving attraction and retention of key talent (50%)
• Ensuring a consistent link between rewards and results (50%)
• Developing a common corporate culture (39%)
• Adapting a global HR strategy to local culture (36%)
• Improving governance of compensation policies, implementation and administration (33%)

The top five (six, actually, since there was a tie for 5th place) objectives reported by low performing companies for their global HR strategies:

• Implementing a consistent global HR philosophy (58%)
• Ensuring a consistent link between rewards and results (46%)
• Improving attraction and retention of key talent (42%)
• Implementing streamlined and efficient processes (42%)
• Adapting a global HR strategy to local culture (27%)
• Reducing overall HR costs (27%)