Global Oil Production and the Impact on Pay in the GCC – Part 2 of 3

By Tim Knight

In this second article Tim discusses the impact on the reward and retention of key staff that the anticipated changes in the global energy market are likely to have.  Part 1 introduced the landscape of global oil production and the GCC.

It is tempting to pontificate on other matters such as social, cultural and economic change, but let us think about some of the consequences that will face HR and Compensation executives from 2015/16 onwards.

Traditionally the GCC has been the location of choice for expatriates from the West and Asia. Working in a relatively stable economic environment with good health care, schooling and leisure facilities the region has many attractions for expatriates seeking continued employment in a safe and secure location while enjoying relatively attractive levels of earnings. This is likely to change in at least two respects.

The first is that the management and technical talent currently available in the West, some of which would be expected to gravitate towards the GCC, may be more inclined to either stay at home in N. America and Australia or move to locations that are culturally more closely aligned to their own such as S. America. This does not mean that the reservoir of talent is likely to dry up but the availability of high quality personnel, vital to the continued economic and social development of the region (e.g. doctors, engineers, lawyers, educationalists, the professional management class), may be harder to come by.

The second is the challenge presented by the new technology in the exploitation of new fields. The opportunity to master new techniques offered by fracking, horizontal and deep well drilling has some similarity to the challenges presented to the early oil men in the pre-war and immediate post-war days of oil exploration.

This article addresses the changes that are likely to take place as far as reward and especially executive reward is concerned.

With the talent pool shrinking, as more of those expatriates that would look to the GCC as a preferred place to work look elsewhere, employers will need to be more innovative in the way that total compensation packages are constructed. The tax free/low tax status will remain a major incentive for those nationalities that enjoy that benefit, but these benefits are now under threat from many economies – particularly western – as their governments seek to close loopholes in order to maximise the tax take. Innovative solutions are called for.

Maximising reward without the risk

How to compose a lucrative and attractive reward package while minimising risk?

This is the question that every employer asks itself whenever a senior hire is taking place; in other words how to maximise the benefit of having a top professional manager on board while ensuring that if things don’t work out our exposure is managed and minimised.

This is where we can learn lessons from elsewhere. Most major employers in the west have been tackling this problem since the deregulation of the markets in the late 1980s when share ownership became easier to administer and as a consequence receiving part of one’s total compensation in stock became more common. There is an old saying that you only get rich by owning the company, or at least a part of it.

All of us want to become or remain rich and the way companies can help their key staff to achieve this is by offering them part of the business through various forms of share ownership.

There are numerous equity based schemes on the market, many of them developed around tax regimes and designed to be as tax efficient as possible. Fortunately that particular inconvenience is removed for staff working across the GCC, for the time being at least. For the benefit of clarity we will address three schemes that are tried and tested and in operation with various employers across the region.

The next article sets out three possible options available to you all of which are tried and tested in the region and elsewhere.

Tim Knight has spent much of the past 28 years living and working throughout the GCC and until July 2011 was Head of Compensation & Benefits at National Bank of Abu Dhabi, a position he held since 2007. During that time he initiated various changes including the introduction of one of the first ESCA approved employee share programmes. 

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