Can Saudi Strike a Balance Between Its Rising Inflation Rate and Uneconomic Salary Bonuses?

Published September 30th, 2018 - 05:55 GMT
While employment levels remain consistent, only 11% of the total pool of employees studied were recruited in the last 12 months. That’s down by nearly 20% year over year, indicative of people staying in their jobs longer in an uncertain economic environment. (Korn Ferry)
While employment levels remain consistent, only 11% of the total pool of employees studied were recruited in the last 12 months. That’s down by nearly 20% year over year, indicative of people staying in their jobs longer in an uncertain economic environment. (Korn Ferry)

Positive signs show that Saudi Arabia economic transformation strategy is helping drive strong business results, Korn Ferry 2018 Salary & Benefits Study revealed.

Those results are translating into measurable salary and bonus increases for employees at all levels, with “high performers” reaping the greatest benefit with bonus pays out averaging 120% higher than the general average.

The annual study from Korn Ferry captured data from 437 organizations across 20 economic sectors and included more than 420,000 employees. Data showed average salary increases of 2.6% across all sectors, with financial services employees realizing average increases of 3.7%

The introduction of Cost of Living Allowances for Saudi nationals and increased expat levy fees could potentially have a negative impact on employee compensation costs, however the ability for companies to support consistent salary growth across several sectors speaks to strong overall positive economic performance, said Harish Bhatia, Regional Director, Korn Ferry MENA.

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It’s the bonus data, according to Bhatia, that sends the strongest signals about the changing business practices in the modern Saudi economy; it potentially points to the start of changes taking place in the overall business culture. High-performing executives received the equivalent of greater than 6 months of salary in bonus. That’s 120% more than the average bonus pay out, clearly distinguishing for performance and sending a strong message stressing on performance behaviors.

“At the senior executive level, we are starting to see a shift in reward schemes where companies are identifying and paying increased bonuses to high performers who are driving business results. That kind of variable approach to compensation sends a message that companies are moving from a long-term fixed cost model to one that is more closely aligned with measurable performance and impact,” said Bhatia.

The problem, however is that the study showed this performance-based differentiation isn’t going deep enough into lower levels of the organizations. Bonuses are being paid to workforce that performed below expectations, which is not best use of compensation budgets in an environment where margins are shrinking. While average salary increases were consistent with 2017 figures, those increases didn’t keep up with inflation. A rising inflation rate of 4.4%, up from 2.2% in 2017, means that the real spending power of the average worker’s basic pay package year over year is at negative (-1.8%).

“The good news is that overall economic performance was strong across most organizations that we surveyed, more employees received bonuses compared to previous year,” Bhatia said.

The challenge organizations have is finding a balance between managing the pressure of rising fixed costs and allocating funds to a bonus pool that is used to drive performance. One measure of finding this balance is to stop offering a bonus to low-performers.

This way we further drive excellence and need for sustainable performance,” said Bhatia. “Bonuses are one of the most important tools organizations have to motivate and incentivize employees tied to measurable performance and business impact in the long run.”

The Korn Ferry study spotlights several other key trends and potential challenges to the Saudi economy and employment landscape:

• Despite efforts to increase participation of women in the workforce, of the companies analyzed women represent only 5% of the total employee base, with the greatest percentage working in entry level jobs.

• While employment levels remain consistent, only 11% of the total pool of employees studied were recruited in the last 12 months. That’s down by nearly 20% year over year, indicative of people staying in their jobs longer in an uncertain economic environment.

• While the year-on-year salary increases for executive jobs is the highest at 6.7%, that also highlights a severe talent shortage of specific skilled workers in key strategic sectors. Companies in financial services, e-commerce, digitalization and logistics, for example, are being forced to pay premiums to attract skilled talent from an increasingly limited potential employment pool. Experienced sales and engineering talent are also limited, with 45% of organizations reporting difficulties in hiring much needed skilled workers.


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