As the battle over shareholders’ ability to control executive earnings rages in Europe and the United States, regional protests over excesses in executive compensation have been relatively muted. Perhaps this is because it was not the region’s lax regulatory policies that resulted in the economic crisis the world finds itself in today. Nevertheless, the region was happy to ride the economic tidal wave of the past few years as long as it felt it was getting something in return. “I think the attitude here is: we don’t mind paying but we want to see that we are getting something for it,” said Richard Lamptey, principal and head of executive remuneration consulting Middle East at Mercer.
Moreover, the nature of Middle Eastern societies itself traditionally lacks the notion of social responsibility that is linked to executive pay in other more developed economies. Consequently, this is seen to facilitate the notion that the sky is the limit in terms of how much is too much. One high-ranking member of a major global compensation consultancy who preferred to remain anonymous remarked, “in the West and capitalist free market democracies, there are different views that come up from society than you might get from more monarchist types of countries. There are different social attitudes that those different political and social organizations give rise to. I expect that people here [in the region] are more tolerant of pay.”
As a consequence, until recently the region has been loathe to face up to the fact that the divide between executive compensation and unskilled labor creates social tensions. In March of 2008 about 1,500 migrant workers in the UAE torched offices and vehicles over lack of pay and 45 Indian nationals were sentenced to six months in jail followed by deportation. “The divide between executive pay and the lowest paid worker in the largest regional companies is about 100 to 125 times,” explained Pon Pitchai, reward manager at a large regional real estate developer. However, the region may still fare better than even the most developed economies with respect to differences between executive and worker’s pay. A joint study conducted by the Institute for Policy Studies and United For a Fair Economy in the US recently published a report saying the pay of S&P 500 CEOs averaged 344 times the pay of a typical American.
Nationality is key
Another aspect indigenous to the region is the unique demographic composition of nationalities that make-up the executive population. However illogical it may be, nationality still affects the way executives in the region are paid. “There is definitely a distinguishing in the market based on where people come from and we see it in salary surveys published in the local media,” said Dany Farha, chief operating officer at Bayt.com. Pitchai elaborated that, “in this part of the world, nationality still plays a very curtailed role in terms of executive pay levels, even at senior levels.” Additionally, it has been candidates from more developed economies that have taken the cake when it comes to executive pay. “Traditionally the highest paid executives were Westerns, especially those from Western Europe and the United States,” said Panos Manolopoulos, managing partner Middle East/CPS global practice leader at Stanton Chase International Executive Search Consultants.
Despite the absurdity of the nationality phenomenon, it seems to be changing as the need to steer companies in the right direction during times of crisis supersedes any xenophobia that may persist in the region. “Going forward, most qualified candidates are going to get paid the best salaries no matter where they come from because people are going to have a larger mix of variables in their compensation scheme and therefore the people who bring in the honey will be rewarded accordingly,” said Farha.
Moreover, the more pertinent reality that organizations in the region will eventually have to deal with is the effect the current global downturn has had on executive confidence levels in the region. Since a large portion of the region’s workforce, the executive one included, comes from the Indian subcontinent that is currently growing at rates greater than or equal to that of the region, a flight of talent out of the region by these traditional labor elements is in the works. “The nationality issue will become a double-edged sword for organizations, because once the economic situation stabilizes there will be a flight of talent out of the region from traditional elements of the expatriate population,” explained Debabrat Mishra, principal & consulting business leader Middle East at Hewitt Associates. “People have seen that this part of the world is not as immune as they previously thought it was. Companies would do well to create a good balance of nationals in the workforce to prepare themselves for a flight of foreign workers from the region,” Mishra suggested.
Many companies and governments in the region are taking heed of Mishra’s advice and have over the past few years enacted localization polices in their labor markets in order to increase the number of local nationals in the workplace. This is good news for local executives who can expect to be generously rewarded for their efforts. “Job for job, it is the case that a local national will be paid more in totality than an expat. Where you have localization policies and a limited number [of nationals] to go around, the supply and demand imbalance will create pressure to pay more,” said Richard Lamptey, principal and head of executive remuneration consulting Middle East at Mercer.
More importantly, however, the region looks set to become more ‘home grown,’ as Middle Eastern executive talent begins to emerge and reconfigure the executive population in the region. “I don’t see that in the next decade that this area will be only occupied by expats… percentages of 75 percent to 80 percent [expatriate populations] will gradually change,” said Manolopoulos. “The diaspora of Arabs, Middle Easterners and Asian [executives] that were out in markets like the US, Canada and Europe, have been very interested in coming back,” said Farha. “There is now an economic reason with greater development of the [regional] markets, as well as the economic crisis that is going on in these [Western] economies, which may provide an additional reason [for Diaspora populations to return].”
Mars vs Venus
It is no secret that the Middle East is predominately viewed as a patriarchal society. However, when it comes to executive compensation, the region seems to be offering somewhat of a respite from its historical gender stereotypes. Many women in the region are stepping out of their traditional societal roles and taking up executive positions in major industries across the region despite the inherent challenges they face. “More women [executives] are in work in Saudi organizations, but they are starting from a long way back because of their social and cultural situation. In Kuwait I see women in senior positions in many organizations,” said Peter Christie, director of executive reward for Hay Group in the Middle East.
Nevertheless, in terms of actual executive pay and willingness to move to the region, there remain some differences that have yet to be overcome. “The gender issue is still a problem on the executive level. I can hardly tell you that I receive as many CVs from women who want to come to the region,” said Manolopoulos. “If it is a regulated package then yes [pay is similar], but if it is a negotiated package then no, I would say that [pay] is at least 20 percent lower.” Moreover, the traditional elements concerning gender politics and pay in the workplace are in some cases playing out to the advantage of companies and female executives alike. “In the Middle East women are very valuable assets to organizations… because they have something to prove, whereas the males are expected to be in the workplace and they are getting paid the same,” remarked Farha.
If the Middle East can capitalize on the trend that has begun with empowering female executives in the workplace, then it’s not unlikely that at some point in the future men and women could become equal players in the world of business and help to shed some of the age-old perceptions about gender in the Middle East.
The end game
Middle East finds itself at a crossroads when it comes to executive pay. The decisions that are made today by organizations throughout the region will dictate whether or not the Middle East can become a fair and profitable region for executives to work in, or whether it will continue to be plagued by the stereotypes and inefficiencies that have been the bane of the executive compensation market in the past. The executives will have to wait and see.
