A Practitioner’s Views on Designing Incentive Schemes in the UAE and GCCSandrine Bardot – CompensationInsider.com

Bonus vs Incentives

Add-on to pay Not guaranteed Not expected Not everyone

eligible No objectives or

KPIs Discretionary

Objectives or KPIs set and agreed

Clear outcomes based on achievement of the objectives

Eligible employees expect payment if objectives achieved

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Bonus Incentives

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Bonuses vs Incentives

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In the region, a lot of organisations have schemes that are some sort of hybrid : Objectives being more or less formally

agreed Payments expected and paid to the vast

majority of employees at the end of the period (usually a year)

But the methodology linking to pay to performance is not always clear as many local companies like to maintain their schemes as “discretionary”

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Some aspects of incentives in the UAE

Multinationals Local organisations

5-point rating scale 46% 66%

4-point rating scale 29% 20%Source : Hay, 2010

A 4-point scale rating system requires a lot of practice of performance management in an organisation, with managers being mature and educated about having tough performance discussions and giving candid and honest feedback to their team members.

For middle managers, local organisations grant higher on-target and maximum bonus payout than multinationals, but for top management / executives, bonus levels are aligned.

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Sales incentives and objectives setting

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In emerging markets, the Fixed/Variable pay ratio tends to be more aggressive than in established markets (eg : 60/40 instead of 70/30)

It is often more difficult to forecast accurately and markets can be more volatile. Think of bonus sensibility (low slope for bonus

payout) in order to avoid overpaying for poorly estimated targets or “undeserved” results

Flexibility must also be built in, for example through windfall clauses and possibility to revise objectives. Think of governance and establish rules to avoid one-

sided direct manager decision (eg : have a committee examine special cases) as well as related potentially negative impact on employee motivation (exceptions must remain that, exceptions)

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Long-term incentives (1/3)

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In the UAE, only 23% of companies have LTIPs, usually stock-based, and these are only for top management (Hay, 2010). These numbers vary by industry. Foreigners not allowed to own equity of local

organisations in some countries in the region Many companies are family-owned and may be

reluctant to dilute their decision power by granting equity-based incentives to top management

Trading volumes can be very low and volatility of prices extreme even based on small exchanges

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Long term incentives (2/3)

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Traditional, equity-based LTIPS for top management may not be the only answer.

There is a strong need for retention : Expats lifecyle in Abu Dhabi is less than 3 years, in

Dubai is around 3.5 years Nationals are a small talent pool and can easily

jump ship for title, money or perceived career opportunity

Consider setting up a retention scheme with payment deferral for key positions, reaching deeper than traditional LTIPs in the organisation

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Long term incentives (3/3)

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Look into : Eligibility criteria Is vehicle cash- or equity-based (even through

phantom shares or RSUs) ? Will you create an add-on, extra scheme, like

majority of companies in the GCC, or a “carve-out” scheme where part of the existing incentive is going through mandatory deferral ? If the latter, will you increase base pay to compensate

for some of the direct cash loss ? Will you have negative deferral in your bonus

bank ? Great for sharing risk as well as success and align

everyone Risk of retention, buy-in or motivation issue with plan

members, especially if the plan starts with a negative in the first year

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Governance at the Board level

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Governance differs : Dubai has been open to multinationals

(mostly through the free zones) for longer and their governance practices have had time to start and permeate in local organisations.

Except for the oil sector, Abu Dhabi has started to open to multinationals more recently. The private sector is also less prevalent in Abu Dhabi, and government-owned organisations tend to be managed in a more traditional style

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Free resources from my blog http://compensationinsider.com/what-is-t

he-difference-between-a-bonus-and-an-incentive/

http://compensationinsider.com/equity-theory-and-the-design-of-your-incentive-scheme

http://compensationinsider.com/analyse-my-sip/

http://compensationinsider.com/boards-and-quotas-for-or-against-them/

http://compensationinsider.com/an-important-day-for-females-in-the-uae-and-beyond/

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Thank you !

Sandrine BardotConsultant,

trainer, speaker, blogger

+971 566 172 864Sandrine@Compensationinsider.co

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