The rise of disposable income

Saudi Arabia and the UAE are the global leaders in senior executive remuneration. But are rising pay packets the only way to attract senior management to the Gulf, or will companies offer new incentives to lure in the big shots?If you ask any of your colleagues why they are working in Abu Dhabi or Dammam, you might be surprised when they say something along the lines of ‘you can't beat 365 days of sunshine'. While it is true that the region is sunny (and banal talk about the weather never goes out of style), what really attracts foreigners to the region is the cocktail of high incomes and low taxes.

This fact has been reinforced by Hay Group's global study of senior management compensation. Managers in Saudi Arabia and the UAE receive the highest disposable income in the world, averaging more than US$220,000. This is nearly three times the average compensation in the UK and twice as much as the US. The potential to double incomes by moving to the GCC is the main factor in attracting experienced managers.

A senior executive at a global insurance company, who wishes to remain anonymous (she says it is "uncouth" to discuss salary), says that she left a comfortable living in London for Dubai. "It wasn't just the money, although I am making more than twice my previous salary. The Gulf is very attractive because it is an emerging market, and there are not many of those around. To be in a place where growth is 25 to 30%, compared with two to five percent, is exciting, and being able to contribute at the infrastructure phase is both a fulfilling and valuable experience. The international exposure and skillset will be valuable for me in my next move, and I am also putting away significant savings for my future."While senior managers in the region are enjoying the fruits of high disposable incomes, employers are looking at different compensation schemes in order to lower costs and align interests. "Managers in Saudi and the UAE enjoy soaring levels of take-home pay, as employers in this region pay more attention to cash rather than performance-based incentives," says Vijay Gandhi, reward information services manager for Hay Group in Dubai."But as demand for experienced managers remains high, companies in the region are looking more closely at the use of long-term incentives as a way of attracting and retaining international talent," he continues.Long-term incentives, such as stock options, performance pay, and pension schemes are practices endemic to public corporations throughout the developed world, and will eventually become standard practice in the region as more companies are listed and need to implement modern compensation structures. Gandhi agrees but provides Arabian Business with a caveat: "Salaries are high because in this region there is high demand for top talent, and supply at the top end of the market is very low. A high salary is one of the attraction points in the Middle East, but demand for experienced executives remains strong which pushes the salaries higher."The dynamic of high demand for talent and an expatriate model of compensation, is delaying reform in pay. "The majority of workers are expatriates who are more interested in what they take home now, rather than long term incentives."Our friend at the insurance company agrees with Hay Group's findings, but based on her compensation package, which is similar to those awarded to other top executives, she believes that the disposable income portion of compensation is high due to three reasons. "First, companies need to incentivise talented managers by offering excessive cash; second, expat packages heavily subsidise housing, transportation, education, and healthcare costs, which frees up a lot of disposable income; third, the tax regime in the GCC is very favourable. Not only are local taxes low to non-existent, expats enjoy significantly reduced rates in their home countries." Source