Change is the New Normal for HR in Saudi Arabia

Change is the New Normal for HR in Saudi Arabia

Change is the New Normal: How HR in Saudi Arabia is having to Adapt

By Abdulaziz Alajlan*

If a week in politics, as the old saying goes, is a long time, then it seems a week in Saudi Arabia is looking like a lifetime right now.

Every week there appears news about change. First, it’s driven by external factors and the need to adapt – the oil price, the conflicts in Yemen and further north in Syria, the stuttering Europe economy, the gyrating global stock markets that are bulls one day, bears the next.

And a second large part of it is internal, and for the most part, hard-wired to the first. It begins with the pace of reform across the public sector driven by the leadership of the Council of Ministers and CEDA. It is manifesting itself in a construction sector downturn, in a weak stock market, and in a caution about investment and a desire to hang onto cash as much and for as long as possible.

So, how can organizations intricately connected to the market – indeed pulsating and performing at the beat of the market – keep up? What information do they need to survive, to change and adapt, to succeed? Among other things, they look to see, hear and learn from their peers and their competitors. They adapt, they improvise. And hopefully, they overcome.

As a gauge on the need for market intelligence, Mercer’s recent series of forums across the Kingdom – in Jeddah, Riyadh and al Khobar – were heavily oversubscribed in all three locations. There were double the number of attendees, and three times the number of questions and discussions around HR’s determination to adapt and overcome.

The forum debates were a long way from the same forums six months earlier. In October 2015, compensation and benefits trends were at the top of the agenda, as usual. There was talk of 5% + in pay rises for 2016. Broader HR trends surfaced as well: Saudization, performance management, long-term incentives, plus others. But with oil prices on the slide, a new leadership in the Kingdom and an unsettled geo-political landscape, few at the October Mercer forums were willing to go too far with their predictions about how they and their organizations might foretell the future.

So, what’s changed? What are the hot topics HR professionals are confronting now, and across 2016? First, we list some of the comments and concerns raised by HR professionals at the forums, and then we seek to identify some broader recurring themes.

“Our budget for salary increases is based solely on company performance and individual contributions rather than how the industry or economy is doing overall”

“Our increases this year will be to the base, to fix our internal equity. We think this will help retention and engagement.”

“We are searching for more sources of data because the government budget deficit will affect everyone for a long time, and in different ways.”

“We are working with HRDF to hire interns and trainees and 90% of them end up being hired.”

“Industrial and manufacturing organizations struggle to attract the right female talent. If we find them, the transport question makes it another issue for them their families, and us.”

“We prefer to hire Saudis for entry levels and invest in their development rather than headhunt for higher positions that might leave after a few years. We did not use to do this as much as we do now.”

“Recent Saudi graduates have high expectations of careers and salaries. It takes time to educate them.”

“Saudis do not prefer to move to other GCC countries, especially Oman. Getting the pay mix for those that are ok with a move is not easy.”

“Finance and our executives are pushing to cut-costs.”

“The competition between locally headquartered companies and multinationals for talent is increasing.”

Workforce Planning and Analytics

The talk today is about stabilizing and rightsizing the workforce. Six months ago forum participants talked about where and how to expand. Now it’s more about getting market information to help decide whether to cut, or recruit, or freeze, or all three. Do we stop hiring till Q2 and Q3? Do we suspend the foreshadowed pay rises until the second half? The message from the top suggests HR has to be more creative and agile with a shrinking wage bill for 2016. The need for market data and benchmarks is more evident than ever.

Compensation and rewarding performance

Some organizations that traditionally distribute bonuses in January have put variable-pay payouts on hold until April, to hold onto cash, and to gather more information on what competitors are doing in the market place. Pay rises positioned six months ago at around 5% are now being adjusted down - to something more like 3.5% - 4% - and the better performers are getting a raise before everyone else.
Some organizations are even more granular. Some reported they are holding back increases and variable pay, while others are considering base salary increases purely on company and individual performance. They say preference of increases is to high-performing employees and employees getting paid below their peers, in order to improve internal equity in those organizations.

Data drives decisions

As HR professionals are pressured to think in more strategic and transformational ways than ever before, they need to consider multiple sources of data - for everything from salary increases and adjustments, to variable pay shifts that manage costs and ensure that the business doesn’t hurt its cash flow. In addition to ensuring day-to-day workforce operational hygiene, HR teams are being pushed to support business re-engineering and workforce skills development with market insights, data, metrics and benchmarks. Across the economic landscape in Saudi Arabia, local firms want to know more about what the market is doing more than what their core competitors might be doing. In addition, regulatory changes that affect the way businesses see their people costs (like recent IFRS requirements that means companies have to pay closer attention to their end-of-service obligations) are bringing HR folk into strategic & financial discussions more frequently than in the past.

Concluding Remarks

Despite the uncertainty, and the cautious tone from HR professionals at the March forums, at a macro level the Saudi market is a growing economy and a leader in the region. It is important not to forget that the scale of the economy and the scale of investment – public and private – will ensure development and growth in a range of sectors for the foreseeable future – from mining and resources, to energy, manufacturing and services and beyond. While still over-reliant on oil, the diversification effort is under way with a vengeance with heavy, long-term investments.

It is also clear that talent competition in the market place will continue, as the scarcity of professional skills continues at a national level. The influx of graduates will ensure this dynamic remains constant for some time. According to the Saudi Ministry of Labor, in 2011 Saudi Arabia had 700,000 Saudi Nationals employed within the private sector. At the end of last year this number had swollen to 1,700,000, with an estimated 250,000 entries into the private sector each year.

If the feedback from the forums is any guide, it is that data, judgements and fact-based decisions will continue to shape the KSA market for the rest of the year. We look forward with interest to the release of Mercer’s Total Remuneration Survey results at the end of Q3, when HR professionals will come together again. And amid all the uncertainty, one thing is for sure: Mercer is booking bigger conference rooms to handle the numbers.


*Abdulaziz Alajlan is a Consultant with Mercer’s Information Solutions business which is responsible for the Total Remuneration Survey for Saudi Arabia and 140 other countries. Abdulaziz is based in Riyadh.

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