Dubai: It’s common practice among companies to grant a severance pay to a worker at the end of the employment. The compensation is usually a lump sum based on the employee’s length of service and, in this part of the world, it is a welcome alternative to the lack of a state-mandated pension for expatriates.
Most employers in the UAE stick to the standard benefits required by law, but a growing number of organisations are enhancing their end-of-service packages to incentivise their staff.
In the latest survey by Towers Watson released this month, nearly half of companies (44 per cent) with operations in the UAE indicated that they provide enhancements to the standard end-of-service benefits (ESBs) of their staff.
Nearly all (92 per cent) of companies provide ESB in the UAE, while the majority of those who don’t have put in place retirement or other benefits in lieu of the ESB.
Across the Middle East, the study noted a notable shift in the reason for providing supplemental benefits. Whereas in the previous survey companies said they were often driven by local or industry best practice, organisations now said they need to make their benefits offering more attractive in order to retain key talent within the organization.
When calculating an employee’s gratuity, companies follow a standard formula and take into account the employee’s period of service. There are certain restrictions, however, that can negatively affect an employee’s payout, such as the number of days when the employee was absent from work without pay, which is often left out in the calculation.
To enhance the severance compensation, some companies apply continuous service to the applicable statutory ESB formula or include an “enhanced accrual rate for each year of service, additional years’ service and an enhanced definition of salary.”
“ESB enhancements include improvements to the standard ESB formula,” said Michael Brough, Towers Watson’s Middle East benefits specialist. “Most interestingly is the wider use of supplementary savings or retirement plans on a defined contribution basis, which is the most popular enhancement.”
Brough said the employees who would benefit from an enhanced ESB the most are employees who stay in the region for longer periods of time as the enhancement will enable them to have a larger payout. Many organisations provide company-wide enhancements, while others offer the benefit only to specific categories of employees, such as those in the top or general management.
The survey covered organisations with operations in the Middle East. More than 170 companies, most of them based in the UAE, participated in the study. Across the region, almost all respondents said they provide ESBs, while a significant number indicated that they provide enhancements to the mandatory benefits.
Helena Houia, principal consultant at Talent2, agreed that providing enhanced ESBs is crucial in incentivising staff to stay longer with the company, especially at this time when many organisations have difficulty replacing lost talent.
“Talent is never easy to replace in this market. It is hard to find and retain talented professionals,” Houia told Gulf News.
“I believe the average work tenure of expats from developed markets has gradually increased since the recession from approximately 3 to 5 years to staying for at least 5 to 10 years. These types of incentives to retain staff would work for these candidates therefore rather than moving within the same market for other reasons like a salary increase they would be incentivised to stay where they are,” she added.