Saudi Arabia’s economic transformation benefiting business, says study

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Time: September 30, 2018 

Raneem Younes, center, an intern at Careem gets a little help from a supervisor at the Careem offices in Jeddah. (GettyImages)
  • 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
  • The good news is that overall economic performance was strong across most organizations that we surveyed

RIYADH: The ongoing economic transformation in the Kingdom is already bearing fruit in the business sector according to a new study by the US-based consulting firm Korn Ferry.
The Korn Ferry 2018 Salary and Benefits Study claims that Saudi Arabia’s economic transformation strategy has led to impressive business results which are translating into measurable salary and bonus increases for employees at all levels, with high performers reaping the greatest benefit — landing bonuses of up to 120 percent more than the average.
Harish Bhatia, regional director of Korn Ferry, told Arab News, “We see a positive shift in Saudi Arabia where more organizations are recognizing and differentiating high performers by paying them significantly higher bonuses.”
He warned, however, that, there is “more to achieve by ensuring a limited bonus pool is used carefully to reward only average or higher-than-expected performances. Many organizations are still paying bonuses to poor performers, and we believe this is not the best use of the funds available to drive business performance.
“In mature global markets, this trend is more noticeable, with limited bonus pools strictly being paid out to employees who are making a difference to the organization’s top line and bottom line. This is even more critical for senior managers and executives,” Bhatia continued.

Korn Ferry’s study captured data from 437 organizations across 20 economic sectors in the Kingdom and included more than 420,000 employees.
Data showed average salary increases of 2.6 percent across all sectors, with financial services employees realizing average increases of 3.7 percent.
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, Bhatia suggested, but he stressed that “the ability for companies to support consistent salary growth across several sectors speaks to strong overall positive economic performance.”
It is the bonus data, according to Bhatia, that sends the strongest signals about changing business practices in the modern Saudi economy.
High-performing executives received a bonus equivalent to more than six months salary. That is 120 percent more than the average bonus pay out, clearly distinguishing for performance and sending a strong message that great performance will be richly rewarded.
“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 good news is that overall economic performance was strong across most organizations that we surveyed; more employees received bonuses compared to the previous year,” he 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, Bhatia pointed out.
The study also suggests that the Kingdom’s nationalization initiative continues to be a success. In the retail sector for example, employment of Saudi nationals increased from 21 percent to more than 35 percent as companies prepared for new Labor Ministry regulations on expat employment in key sectors that came into effect this month.

This article was first published in Arab News

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