Attracting the best talent and holding onto the existing top performers means the company will need to have an attractive compensation package within its staff retention and hiring plan.

Sometimes referred to as a salary package, an employee compensation package is the overall combination of financial and non-financial rewards that employees receive in exchange for their work. Falling out of touch with what makes a strong employee compensation package may mean your company is losing its competitive edge. Therefore, it is essential to have a well-structured and competitive compensation package for your employees to attract, retain, and motivate top talent.

In this guide, we take you through the key elements of structuring a competitive compensation package for your employees in the United Arab Emirates (UAE).

The Importance of Competitive Compensation in the UAE

The UAE has established itself as a global business hub, attracting talent worldwide. With its strategic location, tax-free environment, and ambitious economic vision, the country has become a magnet for skilled professionals across various industries. However, this also means that competition for top talent is fierce, making competitive compensation packages a critical factor in attracting and retaining the best employees.

In 2022, about 42 per cent of workers in the UAE indicated that they would reconsider their employment if their company did not continue to offer long-term remote work options. This is a significant factor that cannot be overlooked, as many professionals weigh this aspect heavily in their decision-making process.

This signifies that competitive compensation packages in the UAE go beyond just offering high salaries. They encompass a holistic approach that includes various monetary and non-monetary benefits. Hence, by crafting well-structured compensation packages, organizations can:

• Attract top talent
• Enhance employee motivation and productivity
• Improve retention rates and reduce turnover rates
• Foster a positive company culture
• Boost overall employee engagement and satisfaction

Key Elements of a Competitive Compensation Package in the UAE

A well-structured compensation package is a combination of various elements that cater to the diverse needs and expectations of employees. Let’s quickly go through some of the essential elements HR professionals, compensation and benefits specialists, and business leaders in the UAE should consider when building an attractive compensation package:

1. Base Salary and Market Benchmarking

The foundation of any compensation package is the base salary. In the UAE, where the cost of living can be high, offering a competitive base salary that aligns with the market is crucial. To determine appropriate salary levels, organizations should engage in regular market benchmarking exercises.

Market benchmarking involves comparing your organization’s salary ranges with those of competitors and industry standards. Industry sector, company size and reputation, job role and level of responsibility, and nationality are some of the factors that can influence salary benchmarks.

Besides those factors, organizations should do the following to conduct effective benchmarking:

• Utilize salary surveys specific to the UAE market.
• Participate in industry-specific salary surveys to gain more accurate data for your sector.
• Consider the total package value, not just the base salary, when making comparisons.
• Regularly review and adjust salary ranges to remain competitive.

2. Performance-Based and Incentives

In addition to a base salary, many organizations in the UAE also offer incentives and bonuses as part of their compensation packages. These variable pay components serve to:

• Motivate employees to achieve and exceed performance targets
• Align individual goals with organizational objectives
• Reward top performers and differentiate compensation based on contribution

The bonuses and incentives can take various forms, such as:

• Annual performance bonuses: These typically range from 5% to 25% of the base salary, depending on individual and company performance.
• Sales commissions: Particularly relevant in sectors like real estate, where commissions can form a significant portion of total compensation.
• Profit-sharing schemes are more common in private companies, allowing employees to share in the company’s financial success.
• Long-term incentive plans (LTIPs): Often used for senior executives, these may include stock options or restricted stock units, even in non-public companies.

When designing incentive schemes:

• Ensure clarity in performance metrics and targets
• Communicate the link between performance and rewards
• Consider both individual and team-based incentives
• Align incentive structures with the company’s long-term goals

3. Comprehensive Employee Benefits

Employee benefits package is often as important as the base salary in attracting and retaining top talent. Key benefits such as health insurance, end-of-service benefits, housing allowance, transportation allowance, education allowance for employees’ children, annual leave, and paid holidays are typically included in compensation packages in the UAE.

Depending on the organization’s size and resources, other discretionary benefits can also be incorporated, such as flexible working hours, wellness programs, employee discounts, and remote work options, among others.

4. Non-monetary Rewards and Recognition

Monetary compensation is not the only factor that motivates employees. Non-monetary rewards and recognition are equally important in driving employee engagement, satisfaction, and retention. A simple thank you note or opportunities for career growth and development can go a long way in showing employees that their contributions are valued.

Other forms of non-monetary recognition programs can include:

• Work-life balance initiatives: Flexible working hours, remote work options, and generous leave policies.
• Recognition programs: Employee of the Month awards, peer recognition systems, and public acknowledgement of achievements.
• Company-wide events and team-building activities: Fostering a sense of belonging and community.
• Corporate social responsibility (CSR) initiatives: Allowing employees to contribute to meaningful causes.

5. Perks

Perks such as company cars, club memberships, private medical insurance, mobile phone plans, and others are often seen as a demonstration of an organization’s plan to enhance the lifestyles of its employees and demonstrate appreciation for their hard work.

These benefits are increasingly in the spotlight in the UAE, with several organizations using them to stay competitive and attract top talent.

Factors to Consider When Structuring Compensation Packages in the UAE

Creating competitive compensation packages in the UAE requires careful consideration of various factors unique to the region. Let’s explore these in detail:

1. Industry Standards and Competitor Analysis

As mentioned earlier, market benchmarking is critical in determining appropriate salary ranges and incentives for employees. This is particularly crucial in the UAE, where there can be significant differences in compensation packages across industries.

A thorough analysis of your competitors and industry standards will help you stay competitive and attract top talent. Consider the following:

• Regularly participate in industry-specific salary surveys.
• Network with HR professionals in your sector to stay informed about compensation trends.
• Monitor job postings and competitors’ recruitment activities.
• Consider the total rewards package, not just the base salary, when compared with competitors.

2. Cost of Living and Inflation Rates

The cost of living in the UAE can be high, especially in cities like Dubai and Abu Dhabi. When designing compensation packages, organizations must factor in the following:

• Housing costs: A significant expense for most employees in the UAE.
• Education expenses: International school fees for expatriate children can be substantial.
• Transportation costs: Including car payments, fuel, and parking fees.
• Inflation rates: The UAE’s inflation rate was 3% in 2023, impacting purchasing power.

Regularly review and adjust compensation packages to ensure they remain competitive in light of these factors.

3. Employee Skills and Experience Levels

The UAE attracts talent worldwide, resulting in a diverse workforce with varying skills and experience levels. Consider:

• Creating transparent job grades and salary bands based on skills and experience.
• Developing a skills matrix to objectively evaluate and compensate employees.
• Offering premium pay for in-demand skills or certifications.
• Implementing transparent policies for experience-based pay increases.

4. Organizational Budget and Financial Constraints

While competitive compensation is crucial, it must also align with the organization’s financial realities. This means balancing employee expectations with the company’s budget constraints. Consider:

• Conducting a cost-benefit analysis to determine the return on investment (ROI) for different compensation packages.
• Prioritizing areas where you can remain competitive and compromise with others.
• Exploring creative solutions, such as offering stock options or profit sharing, to stay competitive while managing costs.

5. Emiratization Goals

Emiratization is a government initiative aimed at increasing the number of Emiratis in the workforce. This can impact compensation strategies:

• Develop targeted compensation packages to attract and retain Emirati talent.
• Consider additional benefits that may be particularly appealing to UAE nationals, such as enhanced training and development opportunities.
• Stay informed about UAE Emiratization quotas and incentives offered by the government.

6. UAE Labor Laws and Regulations

The UAE has several labor laws and regulations that dictate minimum benefits and required allowances for employees. So, understanding and adhering to the UAE’s labor laws is critical. Federal Law No. 33 of 2021, for example, governs labour relations in the private sector, outlining minimum wages, overtime pay, gratuity, and benefits like an end-of-service gratuity. 

The UAE Labor Law also mandates a minimum of 30 days of paid annual leave for employees. Compliance with these laws is crucial to avoid penalties and maintain a positive employer brand.

Best Practices for Developing Competitive Compensation Strategies in the UAE

Developing a competitive compensation strategy in the UAE requires a comprehensive approach that takes into account legal requirements, market trends, and employee expectations. Below are some of the best practices that organizations can put into consideration to ensure that compensation packages are both attractive and sustainable:

1. Conduct Regular Salary and Market Benchmarking

Organizations must regularly benchmark their compensation packages against industry standards to stay competitive. This involves gathering data from salary surveys, consulting firms, and government reports. Benchmarking also helps ensure that compensation packages are in line with market rates and competitive within the industry.

Actionable Tip: Review salary data quarterly or bi-annually to adjust for market fluctuations, inflation, and cost-of-living increases.

2. Align Compensation with Business Goals

The compensation strategy should support the company’s overall business objectives. For example, if a company prioritizes innovation or customer service, incentives should be geared toward rewarding employees who contribute significantly to those areas. Compensation should also reflect the organization’s growth stage—startups may rely more on performance-based pay, while established firms might offer more robust base salaries and long-term benefits.

Actionable Tip: Develop Key Performance Indicators (KPIs) that directly tie employee performance to company success, ensuring compensation strategies are aligned with business priorities.

3. Ensure Internal Equity

Internal equity refers to ensuring that compensation is fair and consistent across roles within the organization. This means considering factors such as skill level, experience, and job responsibilities when determining pay levels for similar positions. Inequitable compensation practices can lead to dissatisfaction and turnover among employees.

Actionable Tips:

• Develop and maintain a clear job grading system.
• Conduct regular pay equity analyses to identify and address any disparities.
• Implement transparent policies for promotions and pay increases.

4. Customize Packages for Different Employee Segments

No two employees are alike, and their compensation packages should reflect that. Consider tailoring benefits to appeal to different employee segments based on factors such as age, family status, or nationality. For example, older employees may appreciate additional healthcare coverage or retirement benefits, while young professionals may value work-life balance initiatives.

You may also need to tailor compensation packages to different employee groups (e.g., entry-level, mid-career, executives).

5. Align Compensation with Performance

Performance-based pay, such as bonuses, commissions, or profit-sharing, is a key driver for employee motivation and performance. Tying rewards to measurable results incentivizes employees and aligns compensation with company success. This practice is particularly important for sales teams, executives, and senior-level employees who directly impact business outcomes.

Just make sure to implement a clear and transparent performance appraisal system that links compensation increases or bonuses to defined performance metrics.

6. Stay Compliant with UAE Labor Laws

Again, it cannot be overstated—compliance with UAE labor laws is crucial for developing competitive compensation packages. Failure to adhere to legal requirements could result in fines, damage to the company’s reputation, or even legal action.

Stay updated on regulatory changes, especially those related to Nafis and Emiratization policies, which can impact salary structures for UAE nationals.

7. Implement a Total Rewards Approach and Communicate Them Effectively

Develop a comprehensive total rewards strategy that goes beyond just monetary compensation. In addition, ensure that whatever these rewards are, employees understand them. Total rewards can include benefits such as healthcare coverage, vacation time, training and development opportunities, flexible work options, and more.

You can use multiple channels (e.g.,  employee handbooks, intranet, or town hall meetings) to communicate these rewards regularly and transparently.

8. Regularly Review and Adjust Compensation Packages

Finally, as with any aspect of business, compensation strategies should be reviewed regularly to ensure they remain competitive and effective in retaining top talent. Stay updated on market trends and employee expectations to make necessary adjustments.

Actionable Tip: Conduct a comprehensive salary audit every 1-2 years to review and adjust compensation packages as needed. Solicit feedback from employees through surveys or focus groups to understand their needs and adjust accordingly. Also, be prepared to make off-cycle adjustments in response to significant market changes or to retain critical talent.

UAE Companies Known for Their Competitive Compensation Practices

While specific details of compensation packages are often confidential, there are UAE-based companies known for their competitive compensation practices that would attract top talents to work for them. For instance, Mubadala Investment Company is reported to offer attractive compensation and benefits packages, including health insurance, annual bonuses, and an employee share purchase plan. Reviews from past employees can confirm the company’s competitiveness in this regard.

Similarly, Emirates Airlines is known for its generous benefits package, which includes competitive salaries, housing allowance, annual leave entitlements, and access to discounts on travel and leisure activities.

Other notable companies with strong compensation packages include Etihad Airways, Emaar Properties, and Hilti Emirates. These companies are considered leaders in their respective industries and have a track record of attracting and retaining top talent through competitive compensation practices. 

Create Competitive Compensation Packages with Bayzat

Bayzat is committed to helping companies in the UAE develop competitive and compliant compensation packages for their employees. Our cloud-based HR software offers comprehensive tools to manage employee data, salary structures, performance reviews, and more.

With Bayzat, you can also access market data on industry-specific salaries and benefits to ensure your compensation packages are competitive. Plus, our team of HR experts is always available to provide guidance on developing effective compensation strategies that align with your business goals.

Start creating a winning compensation strategy with Bayzat today by requesting a demo or contacting us directly for more information! 

Frequently Asked Questions (FAQs)

Q: How often should compensation packages be reviewed and adjusted?

Compensation packages should be reviewed at least once a year to ensure they remain competitive in the market. However, significant changes in the industry or specific talent needs may require more frequent adjustments.

Q: Can transparency in compensation policies help attract and retain top talent?

Yes, transparency in compensation policies can build trust with employees and show that their contributions are valued by the company. This can help attract top talent who are looking for fair and transparent compensation practices.

Q: How can companies tailor benefits for different employee segments?

Companies can tailor benefits for different employee segments by understanding their unique needs and preferences through surveys or focus groups.