UAE wage growth slows amid economic uncertainty

Author: Criselda Diala-McBride | Date: 22 June 2016

Inflation means employees are ‘feeling this hitting their budgets’, say experts

Wage growth in the UAE is expected to slow to 4.6 per cent in 2017 from 4.9 per cent this year. This is just slightly above the country’s average inflation rate of four per cent, as the GCC economy continues to face headwinds, according to the latest Salary Budget Planning Study by Willis Towers Watson (WTW).
 
Laurent Leclère, senior consultant and data services lead for the Middle East at WTW, said he does not expect the weak salary growth to have a major impact on the UAE’s ability to attract global talent, as the country still offers competitive pay opportunities and tax-free income.
 
However, he underscored the importance of reading and interpreting the study’s figures within the macro-economic context of the UAE today, and how it will eventually affect employees’ buying power and decision to stay in the country.
 
“Employees feel the cost of living in the country hitting their budget harder and [they naturally expect] their employers to support them by compensating them for the current inflation,” he said.
 
Expatriate workers may be forced to assess the viability of staying in the country if the volatile economy persists and hits their living standards and ability to save money. “However, keeping in mind that economic cycles in developing markets typically tend to be shorter, it might take less time for the situation to hopefully change and improve,” Leclère added.
 
Andy Heath, head of organisational effectiveness and performance at Aon Hewitt Middle East, also believes that the slow pace of wage growth will have minimal impact on the UAE’s attractiveness as an employment destination, both in the short and medium term.
 
“Employee expectations of salary growth in the current economic climate are reasonable and a revised forecast of 4.6 per cent should not significantly affect this,” he said. “However, if we continue to see a reduction in salary growth coupled with the introduction of VAT [value-added tax] and/or other taxes, then the UAE may gradually become a less attractive destination for expatriate employees. The degree of impact will largely depend upon how other economies perform during this period and how the UAE compares against these in relative terms.”
 
To address the impacts of a lacklustre economy and limited corporate budget, UAE organisations should create clear employee retention strategies, according to Roman Weidlich, director and lead for rewards, talent and communication in the Middle East at WTW.
 
“[Organisations must] identify which roles and what kind of behaviour [contributes the most to] the organisation’s performance and strategy,” he said. “These roles and behaviours should be positively recognised and should take the lion’s share of any available budgets.”
 
Weidlich said aiming for zero employee turnover is unhealthy, as it typically restricts internal career opportunities and leads to retaining under-performers. “Rather, employers should aim to limit the turnover amongst the talent pool that is making the biggest difference to the organisation in achieving stronger results. If well managed, better performance will, in turn, lead to higher budgets for bonus pay-outs and salary increases next time around.”
 
Heath adds that UAE organisations should continue to look at employee retention on a targeted and non-targeted basis.
 
“By non-targeted we mean developing employment practices that reach across the whole organisation and are applied to all employees,” he explained. “These are typically low cost (on a per-employee basis) but high impact, and can range from developing [or] improving the working environment through to recognition programmes. An employee engagement survey would be a good place to start in identifying those factors.”