UAE Compensation Trends 2007

The UAE saw a slight rise in its annual rate of salary increase to 10.7%, up from 10.3% last year, reflecting continued and in some cases increasing staff shortages.

• Inflation
• Public Sector Pay Rise
• NOC Requirement
• New Labour Law
• Labour Amnesty
  

Inflation
In addition to intense competition for talent that has gripped the entire region, inflation remains a key factor in the UAE. The official rate of inflation was reported at 9.3% for 2006 and is forecast to reach 12.0% in 2007, largely on the back of rising rent levels. Although some new housing stocks have become available this year, the demand for accommodation still seems to be outstripping supply, putting upward pressure on rent levels.
Government attempts to tame the overheated housing market by introducing rent caps seem to have been partially successful, reducing the annual rate of rent increases from 31% in 2006 to 23% this year. However, the rate of increase is still significantly higher than the cap, suggesting widespread non-compliance. Furthermore, there is no protection for new comers or those changing accommodation as the rent cap, even when enforced, is only applicable to renewals.
Employers in the UAE, and Dubai in particular, still benefit from the immense popularity of the country with expatriates and its global brand recognition. More expats are interested in working in the UAE than in any other Gulf country, despite the UAE having one of the lowest saving rates in the region. The main attractions of the UAE cited by expatriates are increasingly interesting career opportunities, modern infrastructure and greater social liberties available in the country.

Public Sector Pay Rise
The governments of Dubai and Sharjah have both announced salary increases for their employees this year, ranging from 20% to 30%. Based on the experience of the previous public sector pay rise in 2005, the degree to which the raise is implemented is likely to vary across different parts of the government. However, even a partial implementation is likely to have knock-on effects, particularly as this is the second large increase in the space of two years. Private sector companies, which already struggle to attract UAE nationals due to the more attractive lifestyle on offer in government jobs, are now under even greater pressure to match the salary increases.

NOC Requirement
The last few years have seen a gradual easing of restrictions on expatriate employees switching jobs within the UAE. Professionals in many firms, such as those in free zones, no longer require a No Objection Certificate (NOC) from their employer before being able to transfer their sponsorship to a new employer. This has resulted in much greater movement of labour within the country, forcing companies to offer higher pay to retain staff. Possibly in an effort to limit staff poaching and to ease the upward pressure on salaries, the government has recently tightened the sponsorship rules, emphasising that employees who cancel their employment with one company may not be subsequently sponsored by another company without the consent of the first employer. The move is likely to reduce job switching and slightly ease the pressure
on salaries. However, it may also accelerate the currently limited exodus of professionals out of the UAE and into the other Gulf markets, particularly Qatar, as individuals find themselves
unable to realise their full income potential within the domestic UAE market.

New Labour Law
In a pioneering move for the region, the UAE labour ministry has posted the full text of its draft new labour law on the internet for public review and consultation. The draft proposals include some additional protection for workers and, for the first time, raise the possibility of a minimum wage for expatriate workers. While the overwhelming majority of expatriates will not be directly affected by any such move, the introduction of a minimum wage could drive salaries higher across the board as employers seek to maintain salary differentials between different grades.

Labour Amnesty
During the third quarter of 2007, the UAE government oversaw an ambitious amnesty programme. Under this initiative, expatriates who were in the country without a valid work permit could be legally sponsored by an employer or could leave the country without penalty. The programme appears to have had a mixed impact on the labour market. Some companies interviewed by GulfTalent.com reported the return of dozens of absconding labourers requesting to rejoin their former employer. On the other hand, several construction firms that were using 'day workers' to deal with short-term peaks in demand suddenly found this liquid supply of labour dry up as most such day workers did not have legal status and left the country. Nonetheless, there is unlikely to be any impact on general pay levels as the departing segment were mostly blue-collar workers.