The 2014 GCC Compensation survey found that 51% of employers had increased their employee headcount. This number is likely to grow as the region continues its economic recovery.
Attracting and retaining employees will, therefore, become a strategic priority for companies. Continually improving remuneration, commission and bonuses may help in the short term but, like a high employee attrition rate, this is also unsustainable for most companies that have shareholders to please.
A focus on employee benefits could provide the answer, with corporate retirement savings schemes becoming the secret weapon in the quest for talent.
A blunt retention tool
A retention tool already exists. The end-of-service gratuity was introduced in the 1980s to compensate expatriate workers for the fact that no government scheme exists for them to build up essential retirement savings. The amount of the gratuity is based on the final basic salary and length of service. Therefore, the longer an employee stays with an employer the greater the reward.
However, the gratuity is a blunt instrument in terms of employee retention. A recent YouGov survey of 1,000 UAE residents, commissioned by Zurich, found that 59% were not able to calculate the value of their gratuity. How can the gratuity ever be viewed as a retention incentive if employees don’t even know its value?
Rather than being viewed by the HR team as a potential employee benefit, the gratuity is labelled as a liability by the finance team. There is no legal obligation for a company to accrue the funds required to meet this liability.
Create a retirement savings culture
There is a better way forward and the answer can be found in the same YouGov survey. Almost two-thirds of respondents (58%) said that they would be more inclined to stay with their current employer or join another company if they were provided with a corporate retirement plan.
In other developed economies, a retirement savings culture is facilitated by employers who provide retirement savings schemes for their employees. But most employers in the UAE do not offer their staff an opportunity to save; instead many consider the gratuity to be a satisfactory alternative.
To encourage a savings culture, companies should set up a corporate retirement savings plan for their employees that moves beyond making a simple promise to pay a gratuity to providing a true employee benefit. It can incorporate the existing gratuity obligation and do so within a more structured savings vehicle that acts as a retirement fund and a more effective employee retention tool.
Forward-thinking companies that listen to this demand will find that they become ‘employers of choice’ with significantly improved recruitment and retention results.
From unfunded liability to valued benefit
A corporate savings plan can also be an excellent way to fund those growing liabilities.
It can offer cost-effective access to a range of investments that have the potential to achieve better long-term returns than a deposit account.
Administration is straightforward and funds can be held in a ‘non-earmarked’ account, giving the flexibility to fund gratuity liabilities as and when required.
Not enough thought has gone into the value of gratuities from an employee perspective. It could be the third-biggest financial reward behind salary and housing allowance.
Instead, the gratuity concept has been allowed to wither; it’s not funded and not highlighted as a benefit.
Turning an unfunded liability into a recognisable employee benefit has advantages for all.
Employees will have a valued opportunity to save for retirement, and employers can both cover their gratuity liabilities and compete more successfully for the best talent. It’s time to put the power of corporate savings to work.