The COVID-19 pandemic has changed everything – we hear this every day, however the rewards professionals of the world counter with a strong “Not So!”, pay stays the same. In fact, whilst the rest of the world is dealing with job losses and negativity the Middle East is thriving.
Clients are desperate to retain talent as the rate of job creation in the UAE and KSA explodes.
So, has there ever been a better time for a radical change to pay systems, and more importantly, could a visionary organization actually pull it off?
Pay continually evolves. The introduction of flexible benefits or the advent of the gig economy has provided a different way to tailor rewards, but both cases have a limited reach.
Flexible benefits are a tax-efficient way to give people what they want. Clearly we don’t need tax efficiency in the GCC but we do need choice !
Currently the choices are usually limited to exactly what the company is willing to offer – more or less – vacation, parental healthcare, more money into children’s education allowances, better personal health cover and a top up on life assurance, matched savings benefits, etc.
In most cases, this is not a significant departure from the core offering, but it’s a start.
The gig economy, on the other hand, offers much more flexibility, including working when you want and how you want. However, the lack of security of employment (which is what many gig workers wanted to avoid) poses problems as benefit enrollment is “clunky.”
What if we attract those workers via flex?
Gig workers who were the first ones out the door but now have plenty of choices again.
Now the economy is strong, how do we persuade these employees to convert back to full-time employees that we desperately need, or perhaps we don’t try to make them full-time but lock them in on their terms with flex.
Is it time for something radically different?
What if employees were offered the chance to flex everything and really change the dynamic of the pay system. Could this work, and if so, what would it look like? Let’s discuss some possible scenarios:
In industries where we have variable pay, why not provide colleagues with an opportunity to choose their fixed pay level? It may sound like a crazy idea, but it’s possibly not.
Companies who use incentives are often working towards a target total compensation level, which has two components: Fixed Pay (FP) and Variable Pay (VP) leading to Total Compensation (TC).
If we say, in a simplistic way, that lower case is less and upper case is more, we can develop combinations that suit the company and the employee. For example, FP + VP = TC (lower fixed choice and higher variable will lead to a higher total compensation). Consider this as opposed to FP + VP = TC (higher fixed and lower variable will lead to lower total compensation).
So, an employee who is single, ambitious and loaded with self-belief may be prepared to gamble on lower fixed and more at risk pay in exchange for a higher bonus opportunity, whereas an older worker in the same job with a family, mortgage and a number of fixed costs may be satisfied with lower variable and accept that total rewards levels are lower, but safer.
This would, of course, cause issues around pensions and taxes. However, by setting a core pay level for all jobs and treating the flex element as an allowance, it could be done. Employees could also flip their choices annually. The motivation for those choosing greater fixed pay could be a higher consolidated core amount or a bigger fixed pay opportunity next year. For those electing variable pay, the ability of the firm to significantly differentiate variable pay would be key. Therefore, the performance system is more critical than ever before.
But why stop at pay mix? We know that COVID-19 has forced us to embrace working from home. In the long term, will that be a choice that influences pay? And if not, why not? If your employer can eliminate the cost of prime location real estate in Riyadh Abu Dhabi or Dubai, doesn’t it seem valid to pass some of that savings back to employees? We could see pay increases for those who use their own floor space and power. The employee would benefit financially as well and have a better work-life balance via lower commuting times.
Another idea to consider is when one chooses to work. Why does it matter what hours you keep so long as you get the job done?
But could your employer pay you less in return for this flexibility? Where you work is another flexible option.
Whilst we are used to global call centers, which already have colleagues in Mumbai speaking throughout the night to customers in San Francisco, what if that becomes more of a domestic market flex offering? Technology companies could have Jeddah rate for the job versus a Riyadh rate for the job.
Dubai could no longer be the hub for the UAE as work from home employees flock to the northern Emirates for affordable homes and an easier commute via the new Etihad Rail links.
There are literally endless possibilities. Last, but by no means least, what if you had the option to choose how you get paid? Maybe you eschew cash and want nothing but equity because you truly believe the company you are working in is going places.
There is no doubt that the technology to make these forward-thinking ideas come to life is already here. The question is, will companies take the bold step to embrace truly flexible pay? And if they do, will it prove to be the most effective way to attract top talent and differentiate them from other firms that choose to take the conventional pathway?
While seemingly far-reaching considerations at one time, the present situation has stirred many new ways of thinking about the future of work and its effect on employee rewards. I hope this serves as helpful food for thought as you begin your journey forward adapting to this new, uncertain world before us.
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