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Companies plan for budgeted annual salary increases for 2023 at five per cent, which is higher than the three to four per cent observed in recent years Image Credit: Shutterstock

Dubai: Companies in the UAE have set higher budgets for salary increases this year as employees and new hires demand higher pay, salary hikes and allowances, a recent survey by Mercer's found. More than 200 global and local companies from all sectors were surveyed for Mercer’s 2022 UAE Inflation Spot Survey.

The survey revealed that employees cited expected inflation in the economy to demand better pay and/or one-time allowances, which could help, offset the projected increase in cost of living.

Among the surveyed firms, 16 percent have taken some form of action, including one-time lump-sum payments, off-cycle salary increases, and housing allowance increases, and have increased salaries by an average of four per cent during annual salary increase cycles at the beginning of 2022.

37 per cent of the respondents said they would consider some form of off-cycle adjustment to compensation in 2022, the survey revealed.

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Andrew El Zein, Senior Associate Consultant, Career, MENA at Mercer said: “Employers are being cautious about immediately bumping up wages to match inflation, and many are considering short-term actions with less permanent implications such as lump-sum amounts or retention bonuses, or are investing in improving employees’ work experience by offering improved work-life balance, flexibility and training.

"Having said that, companies are budgeting for higher rises next year, ultimately offsetting employees’ inflation concerns and matching rising pay expectations. This requires a structured approach that balances employee concerns with managing a challenging and unpredictable fiscal environment.”

Salary hikes of up to 20 per cent

These findings are in line with what was projected. 73 per cent of companies surveyed for Hays Salary Guide 2022 said they would increase salaries this year. Out of these, 30 per cent of employers expected to increase salaries from six to 20 per cent, while the rest capped their salary hikes to 5 per cent.

Along with better pay and improved allowances, jobseekers in the region are also demanding flexible working or hybrid working options. Hays revealed that more than half of the surveyed companies were open to some form of flexible working, with 20 per cent comfortable with employees choosing 100 per cent remote work.

Salary pay day
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This also signals a change in the way employment contracts and packages might be structured hereon. HR consulting firm Robert Half projected that UAE firms were looking at increasing salary packages for talent retention, while pulling back on family benefits such as medical insurance and education. The firm also predicted that internal hiring would see an increase, which has a dual effect of retaining quality talent while offsetting the difficulty in finding skilled employees.

Inflation rates in the UAE are projected to reach 5.6 per cent in 2022, according to the latest data from the Central Bank of the UAE (CBUAE). While this projection is on the lower end of the spectrum globally, businesses in the UAE are facing the pressure to pay more or pay allowances if they need to hire or retain talent.

Businesses that cut numbers at the beginning of the pandemic are now looking to hire again to ensure business output remains on track, and for roles that have evolved over the years, However, there is a gap between the required skillset and the available candidate pool. This gap, along with the increase in business activity in the UAE, could mean more leeway for jobseekers or current employees to negotiate higher pay, flexible working options and better opportunities in the UAE.