Lowest salary increases for five years expected in UAE and Qatar as oil price falls

Author: Kirsty Tuxford | Date: 20 Jan 2016

This will be a year of “restrictions, caution and a focus on improved efficiency”, says Mercer

Employees in the UAE and Qatar will get their lowest salary increase for five years as oil prices continue to fall, according to Mercer Middle East’s 2015 Total Remuneration Survey. The increase will be 4.9 per cent – the first time in five years it has been below five per cent.
 
Analysts are blaming the drop in oil prices, struggling financial markets and political volatility. “There is no doubt that 2015 has seen one of the biggest shifts in economic momentum in the Middle East in recent years,” says Nuno Gomes, principal – information solutions business leader at Mercer Middle East. “The rapid decline in oil revenue, which has resulted from oil prices falling from over US$100 to less than US$50 a barrel, is having a significant impact on the growth plans for organisations in the region.
 
“This fall in petro-dollar income has led to cuts in government spending observed in the last three to six months, which is compounding the situation,” he says. “Added to this are under-performing financial markets and regional conflicts. The overall picture is subduing organisations’ confidence and curtailing investment.”
 
The reduced oil price will lead to a slow down in hiring. “It is clear that 2016 is likely to be characterised as being a year of restrictions, caution and a focus on improved efficiency from an HR, compensation and benefits perspective,” says Gomes. “Organisations are looking to introduce new and interesting approaches to rewards, and benefit from the macro-economic environment to make necessary or desirable changes.”
 
Martin McGuigan, head of rewards consulting at Aon Hewitt Middle East, says organisations will cautious when it comes to recruiting this year. “Overall we expect to see more replacement hiring rather than efforts to fill new positions. Those organisations that do continue to hire are likely to focus on back-filling those essential roles and seeking those people required to deliver the year’s immediate strategy, prioritising revenue-generating hires over and above supporting roles.
 
“Offers may be lower than normal as the market is flush with talent, with increased variable pay as a proportion of total compensation,” he adds. “This increase of available talent in the market may also put more pressure on new hires during probation, as candidates will inevitably become easier to replace.”
 
The survey also highlighted a trend of simplifying compensation structures and policies, usually by consolidating allowances, such as housing and transport. It also revealed that 10 per cent of organisations in the UAE now have a pension scheme in the form of a savings plan for employees.