UAE wage rises lowest in the Gulf

Rise in living costs will eat into "real income growth", with a projected rise in salaries of just 0.84 per cent next year, a new study says.

Workers in the UAE whose salaries have rocketed over the past decade may see more modest real income growth next year because of a rise in living costs, according to a new study. The report, which was produced by the management consultancy Hay Group, forecasts that real salaries in the UAE, or salaries adjusted for changes in consumer prices, will rise 0.84 per cent next year, the lowest increase in the Gulf.

Consumer prices in the UAE increased by more than 10 per cent annually in 2007 and 2008 but settled to a more sustainable 1.6 per cent annual rate of increase last year, according to the report, Ten Years of Pay in the GCC. The IMF projects 2.2 per cent inflation this year and 3 per cent next year. Inflation erodes the buying power of income. While pay in the UAE soared by 64 per cent during the past 10 years in absolute terms, salary increases taking into account inflation, known as "real" salary increases, amounted to rises of 17 per cent during the same period.

"One of the main factors in the UAE is the [housing and other living] allowances are not increasing due to the drop in house rents," said Vijay Gandhi, the regional director at Hay Group. "Organisations have effectively frozen allowances in the country." The survey also revealed, however, that UAE workers could expect a better deal than their counterparts in Europe. "In terms of the salary forecasts, it's much lower than the highs of 2007 and 2008, but these figures are higher than some of the other countries in the world."

According to Hay Group, real incomes will creep higher in the EU, rising by 0.8 and 0.6 per cent in Germany and France, respectively, but falling 0.7 per cent in the UK. The US was predicted to realise greater income growth than the UAE, with salary increases of 1.1 per cent in real terms. Kuwait should see the biggest salary rise in the Middle East, where non-executive salaries are projected to rise by 3.6 per cent in real terms.However, professionals in the UAE may escape the gloom, with management salaries projected to rise by 2.14 per cent in real terms, 1.3 percentage points above the UAE average.

Performance-related pay was becoming more common, Mr Gandhi said. "Organisations are becoming more cautious in increasing compensation and want to increase it for the high performances rather than giving a general increase to everyone," he said. Dubai World's debt standstill and restructuring had little effect on employee compensation, with top talent still in demand at businesses recovering from financial difficulties, he said.

Varied income growth and income statistics throughout the Gulf painted a "confusing picture", although all states experienced double-digit salary growth in real terms during the past decade. "In 2007 and 2008, the cost of living was increasing faster than salaries," Mr Gandhi said. "The workforce in the Gulf region actually experienced a fall in real pay. Today, although firms are keeping a tight rein on salaries and continuing to exercise cost constraint, the forecast salary increases are higher than the projected inflation, which has stabilised in 2010 and is likely to remain low in 2011. With lower inflation and stable employment outlook, real pay is set to increase."

Saudia Arabia came top in terms of real salary increases in the Gulf, with the average salary rising by 50 per cent over 10 years. The kingdom was closely followed by Oman, where employees saw 45 per cent real pay rises. Pay packets in Qatar rose the most in absolute terms, with the average salary increasing 80 per cent. However, once adjusted for inflation, Qatari workers' pay rose by 20 per cent.

Workers in Kuwait saw the most miserly pay rise - a 10 per cent increase in real terms. Some analysts disagreed with the Hay report, however. One, at Samba Financial Group in Saudi Arabia, who asked not to be named, said: "Securing averaging income on salary figures in this country is fairly hard." He said the study's predicted increases in the cost of living might be too high. "One of the key elements in any salaried employee's expenditure is rents, and rents have come down substantially," he said. "Disposable income going forward is probably going to be stronger."

The survey polled 350,000 employees from more than 800 organisations in the Gulf. It coincides with a stark warning from the US Federal Reserve that the global recovery is running out of steam. "The pace of recovery in output and employment has slowed in recent months," the Fed said this week, adding that recovery would be "more modest in the near term than had been anticipated". [e-mail]