By Ali Ramadan and Abdulaziz Alajlan*
This time last year, as the global price of oil had just started its slippery slide, HR professionals gathered in Riyadh for an annual Mercer event to discuss 2014 and the year ahead. Compensation and benefits trends were at the top of the agenda, as usual. There was talk of 5% + in pay rises for 2015. Broader HR trends came up too – Saudization, performance management, long-term incentives, plus others. But back then, few at the annual Mercer Total Remuneration Survey meetings wanted to go too far with their predictions about how they and their organizations might foretell the future.
Fast forward twelve months, and there’s plenty that helps explain the wisdom of such caution. There is a new King and new Cabinet, an active military campaign across the border in Yemen, and an oil price now seemingly stuck below US$50 a barrel – half the price it enjoyed for much of the past decade – that is having a clear impact on the outlook that organizations based in Saudi Arabia have about the immediate future.
As part of our firm’s effort to build fact-based decision-making platforms for our clients, Mercer’s team in Saudi Arabia recently completed the 2015 Total Remuneration Survey with a series of Q4 client meetings in Jeddah, Riyadh and Al Khobar. More than seventy organizations attended – from small and large local entities, in the public, semi-government and private domains – with activities in KSA and the Gulf, to entities with operations further afield. Their outlook is important to note, as a business barometer for the period ahead.
Mixing Up the Pay Mix
Despite the apparent uncertainty in this last quarter of 2015, a significant number of organizations are still planning pay rises in 2016. The Mercer Salary Movement Snapshot for Saudi Arabia (Q3) estimates the rise between 3% and 5%, softer compared to a year ago. In oil and gas, it’s more like 1-2%. Contrast this to the other Gulf States, where all-sector pay rise expectations are still around 5%. Interestingly, however, the role that benefits as an element of total compensation is beginning to play – in terms of variety, value and proportion – appears to be gaining in importance. Some companies are using benefits as a retention tool; some see it more as an attraction mechanism. But overall, the pay mix is being used as a point of differentiation more than in the past, and, based on anecdotal evidence from our clients the effort is being rewarded via more engaged and more stable workforces.
Continuing to Localize the Workforce
Employing more Saudis in more roles, meeting quotas, and developing the capabilities of Saudi nationals, continues to be a prime focus for all organizations across the Kingdom. In some cases, this is extending to discussion about raising the minimum wage of skilled technical jobs to attract more and more Saudis to apply for entry-level jobs. Participants spoke about the recent changes to the KSA labour law, and of the continued need to drive career advice down through into secondary education – and even to families – to help shape the workforce of tomorrow to meet the market’s needs.
Talent War Takes a Turn
More broadly, the war for talent now appears to be morphing into a war for the right talent at the right price. Participants at the forums noted that Regretted turnover is down in companies with an enviable workplace culture and reputation; it is within this segment where competitive recruitment packages continue to emerge. But the churn is slowing – as once-mobile and impatient employees are taking stock of the cooling job climate.
The new oil price is also having a clear – and potentially transformational – effect on government spending, and in turn, on government contracts for services, projects and initiatives across the Kingdom. It means that not only oil and gas companies with a large presence in KSA are feeling the effect. Upstream and downstream industries are re-tooling and reviewing their footprint and their outlook for the next year or so. And that means workforce reviews and efficiency drives are moving closer to the top of CEO agendas.
As an extension of this, HR professionals are being required by their business leaders to think in more strategic and transformational ways than ever before. 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.
The noted scientist Albert Einstein was fond of saying ‘I never think of the future – it comes soon enough.’ Perhaps the same can be said for those HR professionals living in Saudi Arabia thinking about their organizations a year and more from now. They know what they need to do today and tomorrow and the day after. The tricky bit is seeing out over the horizon, and knowing with certainty what must be done for the time after that.
*Ali Ramadan and Abdulaziz Alajlan are analysts with Mercer’s Information Solutions business which is responsible for the Total Remuneration Survey for Saudi Arabia and 140 other countries. Ali is based in Warsaw and Abdulaziz is based in Riyadh.