When ahead of the game in the world of business, no one is really concerned with how much was spent to get there, let alone on whom. More often than not, people are content to jump on board and ride the proverbial train until the last stop. That may have been the case prior to the onset of the current global recession. But today, companies in the region have to equate their positions and organizational structures with the current economic environment in order to remain competitive in the absence of better times. “When there is a storm outside you go back home, lock yourself in and discuss what you are going to do until the storm blows over and the rainbow comes back,” remarked Panos Manolopoulos, managing partner Middle East/CPS global practice leader at Stanton Chase International Executive Search Consultants.
Right now, that rainbow still seems a long way off, as companies across the region begin to restructure their businesses in order to deal with the decreasing growth rates expected in 2009 and beyond. Naturally, this trimming down process has begun with casting off excess labor costs associated with times of growth, especially large executive pay packages. “There has been a lot of over-hiring which has happened in order to be able to recruit and get [executive staff] on-board,” explained Debabrat Mishra, principal & consulting business leader Middle East at Hewitt Associates. “This has resulted in a lot of [executive] overcompensation which is getting corrected right now.” Accordingly, companies in the region are beginning to realize that there is no easy way to restructure their businesses after years of promising growth, however reluctant they may be to admit it. A former senior executive who was recently laid off at the government-owned real estate company Dubai Properties in the UAE said that most departments were being downsized by “as much as 60% across the board.” Recently Dubai Properties announced that they would release a statement addressing the subject of redundancies, but they later recanted on that intention.
However dim the prospects for executive compensation in the region might be in times of a global recession, there are still plenty of silver linings in the ominous clouds compared to many developed economies. “There are people being let go in Europe, the UK and North America who are going to think, ‘Well, the Middle East still offers the opportunity to get a decent job and maybe now is the time to think about going down there,’” said Richard Lamptey, principal and head of executive remuneration consulting Middle East at Mercer. “The Middle East, generally, will be less affected by the global economic downturn than some of the Western economies and I think it will change perceptions about the opportunities that are available down here,” added Peter Christie, director of executive reward for Hay Group in the Middle East.
Moreover, the nature of economies in the GCC as tax havens continues to provide an attractive setting for experienced executives to come to the region. According to the Hay Group, net disposable income (gross pay adjusted for taxes and cost of living) for executives in the Middle East ranks amongst the highest in the world, with five of the six GCC countries ranking in the top 10 and four new entrants in the top 20. “When you look at net disposable income… that shows very clearly that executive pay in Saudi Arabia, Qatar and the UAE are at the top of the pile and that is because of the very favorable tax rate,” said Christie.
Total compensation for executives in the region, however, remains lower than the rest of the world. The main reason is that the region still lacks meaningful long-term incentives for executives. Without these incentives, executive compensation in the region persists in being strongly underpinned by large allowances offered in compensation for the increasing cost of living and the opportunity cost of relocating to the region. “The fundamental difference between the way that executives are paid in the Middle East and the way that they are paid in Western economies… is that the balance here is towards base salary and substantial allowances, which are generally free of taxation, and discretionary bonuses which may or may not be quite large,” commented Lamptey.
The opportunity for executives to be well compensated in the region remains linked to the outcome of the ongoing economic downturn. The inherent growth potential of the region coupled with the lack of highly talented individuals still presents a labor market that is relatively easier to perforate than many of the world’s economies. “Despite what most people say, the Middle East and especially the GCC lack talented people and hence there is a very big need to attract good talent,” said Manolopoulos. Consequently, the lack of qualified executive candidates will continue to push executive salaries upwards, albeit in a fashion that is more fitted to the current economic scenario. As Pon Pitchai, reward manager at a large regional real estate developer concluded, “We have not reached the zenith of executive pay and there is ample room for increasing executive compensation.” Considering the hundreds of recent layoffs in the real estate industry, these are encouraging words — executives that can still expect to be plentifully rewarded, as long as they can keep their jobs.
