Do you pay for the job or the nationality ?

Do you pay for the job or the nationality

A recent article reviewing salary differences between nationalities in the GCC made me think.

Obviously, in the region, we are all aware of these differences, even if we rarely mention them.

According to the annual Gulf Business salary survey,

“In the UAE, a Western expat makes 12.6 per cent more than an Arab expat and 40.5 per cent more than an Asian expat, while an Arab expat gets paid 24.7 per cent more than an Asian expat. (…) The starkest salary differential between an Asian and Western expat (which translates into the highest to lowest range) is in the UAE (40.5 per cent) and then Saudi Arabia (36.2 per cent).”

Talk about an elephant in the room !

Meanwhile, Hay also performed their annual compensation survey. It covers almost 237,000 employees in the UAE, mainly working in the private sector (532 companies, 16 industries). Their report finds that:

“…UAE nationals are paid an average 44% premium above the market (…but…) expatriates from emerging markets like China, Korea and India are starting to demand higher packages, particularly for skilled and technical roles. With close to 10% pay increases in their home markets in 2011, and again in 2012, they are weighing up the benefits of staying or going.”

And the situation of stark salary differences by nationality is very similar in the other GCC countries.

Now, why am I mentioning this ?

Many years ago, in my first expat position, I was asked to revise salary ranges in our SEMEA region. At the time (1999), the Middle East HR manager gave me the salary structure for the Dubai office. He sent me 3 sets of quite differentiated salary ranges, and I remember thinking : “How nice of him to show me how salary structures have evolved over the past few years !”.

Then, I looked closer, and much to my dismay, found out that these ranges were all actually the current ones, just different : Westerners with the highest one, then Arabs, then Asians. Salary or other discrimination based on ethnicity is simply illegal in France so this was beyond my comprehension. I was in shock.

One of my first actions as the newly appointed C&B Manager, was therefore to let go of these structures and replace them by a single one. My international company would not accept such blatant differentiation !

Now, let’s put this back in context. In 1999, even though it was starting to fade away, it was not uncommon for companies, especially local and regional ones, to have multiple salary ranges based on “nationality” (understood as a broad region of origin).

Nowadays,the practice has almost disappeared : salary ranges are not based on nationality any longer. Yet statistics prove that in reality, we continue to pay much different salaries to our employees and new hires, based in part on their origins. It may not be a conscious decision, but it still happens, for a variety of reasons :

  • lower or higher current salary of the expat candidate in their home country or in their current role in the GCC – meaning that the offer, even if increased by a nice percentage compared to current salary, will still reflect origins (I have yet to hear of a company having a policy of offering “maximum 10% more to a Westerner, 15% to an Arab and 20% to an Asian candidate for the same role”)
  • possibility to indicate desired nationality in the job advertisement, which means candidates will come with relatively similar salary expectations, and the company has a better grasp of how much to budget for the role
  • at times, existence of clusters of nationalities for certain types of jobs in a company. For example, the accountants may be mostly Levant Arabs, Indians or Philippinos.

Once he/she has entered the company with a certain package, given the way salary increases are handled, it will take a very long time for an employee to catch up compared to peers in similar roles coming from a more “expensive” region.

And so, the differences, even though they may be reducing a little over time, remain largely unchanged. Same as for the pay gap between men and women in similar roles in the western world !… Or, as it turns out, for the tension between local Nationals in some African countries and the Chinese expats that are settling there more and more….

So my question is : as HR and Compensation professionals, what are we going to do about it ? Do we want to do something about it ?

Or do we believe that, to some extent, it is normal that nationality could influence packages in a labour market mostly driven by short-to-mid term expats ? That, to some extent, even if packages may be lower for certain nationalities, they still earn significantly more in the GCC than they would back home, and are therefore able to save a good portion of their income and support themselves and their relatives in their home country ?

At the same time, it does not make sense financially to offer a huge salary increase to an employee or a candidate simply based on their nationality (for example, offering XX Dirhams for the job may mean doubling the salary of an Asian candidate vs offering “only” 10% more than their current pay for a Westerner – and it is a useless spending of money for the company in the former case, as the Asian candidate would surely be happy with a lower pay).  An increase based on percentage keeps everyone happy (relatively) and helps control costs in case the candidate comes from a lower cost region.

In my opinion, there is no clear-cut answer to that question.

One thing we can do is perform statistical analyses to spot potential internal equity issues in our company, and trying to identify the main reasons for these through regression analyses. If nationality plays a significant role, then, at the individual level, for your highest performers, you can do special salary increases or adjustments in order to absorb as much of the inequity as possible and retain these high-value employees, no matter their passport.

To my fellow GCC HR pros : are there specific tactics that you use to tackle this situation ? Do you try to tackle it at all, or do you think this is a non-problem ?

 

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Comments

  1. It is a matter of market pricing . I used to work for an airline in the Middle East and we had 3 basic expatriate packages – one for Americans, one for Europeans and one for everyone else .The Americans got the best deal. Thr trouble was that the salaries for “everyone else” involved a 300% rise in net salary compared to local salaries for say…. a Philipino technician ..but only 50% for ..say a Lebanese technician. If you take a “moral” stance and say “we should pay the same for everyone” you end up being only able to recruit in certain markets.

    John
    john@compandben.com

    • I agree John, that’s why I think there is no clear-cut answer.

      The GCC is a market of expatriates, some of them (more and more of them) stay for a very long time, even all their life. They raise their kids in their new GCC home, including in higher education, and then the kids are employed here as well as keep their parents on their visa…

      In that case, whether they are first or second generation, can we really say that these people are still real expats ? If they don’t plan to go back to their home country in a foreseeable future (say 2, 3 or 5 years like in traditional international assignments of Westerners to the rest of the world when they work for a multinational), can we still, in full honesty, compare their salary in the GCC to earnings in their home country ?

      I’m not saying we should pay the same for everyone. But I think that if we create a single salary range for all nationalities on the same job, then we give ourselves a chance, over a long period of time, to reduce some of the glaring inequities that are a common situation in the GCC. The high performers that have committed to the company and country for a long time should be able to evemtually earn somethingsimilar to their Western counterparts on the same job.

      And we would fight these inequities by principle and by law, back in our home countries in the West.

  2. Hi Sandrine

    The six million dollar question. Internal equity versus commercial reality.

    The way we approach this is to press for clear articulation of skill set needs and where those are best found. If not locally then they need to be brought in and that may require a premium to relocate or, it may provide the opportunity to arbitrage compensation costs by attracting talent from a lower cost location, obviously the associated costs of relocation needs to be factored in to the justification.

    The older rules focused on “Boomers” are quickly thank goodness, disappearing. The skills you have now rule as the competency of mobility in western society diminishes. If that enables you to be paid at US levels of compensation so be it. Most of our work these days is based around severing the links back to the home location and build systems that focus on international pay scales. They start you off by reflect compensation expectation rather than competency in role e.g. first time transfers from Asia perhaps at the bottom of the scale and Americans and Swiss at the top. Once in position this is quickly replaced with assessment based on contribution rather than nationality or country of origin.

    More and more companies want an engaged workforce and that is not achieved by major differences in terms. Perpetuating a home and host model works completely against that and an international framework is often necessary. If you have the skills and the magical, diminishing competency of mobility then you will enjoy a universal set of terms that is the same as provided to your peer group wherever they originate rather than one that looks to your last place of residence or country of birth.

    Pay will differ particularly at the start but only so long as your skill set has the scarcity that demands it. Hope this help fuel the debate.

    • Thanks a lot Paul for a very thorough contribution on the latest trends in international mobility. I hope that in the GCC, eventually, “Pay will differ particularly at the start but only so long as your skill set has the scarcity that demands it.” It is a bit of a challenge in countries where 80% of the working population is made of “expats”… and therefore the competency of mobility is less of a contributing factor.

      • Yes I agree but that’s the market reality to John’s point and the term expat really is a misnomer. We have found that in most cases there is a skill set or a competency that warrants the market level of pay and the fact that they may have originated elsewhere or happen to be a different nationality (albeit a homogeneous group) is secondary.

        Great topic and thnx for keeping us thinking.

  3. Philip Mathew says:

    Hello Sandrine,

    Good that you brought this up. This has a strong legacy and somehow it still exists.

    The differentiation makes sense in the context of paying for the skills which can mostly be sourced from a specific region. If not, at what cost are employers engaging in such practice? Their culture, perhaps.

    With respect to internal equity, this causes a problem for organization in project management (different nationalities in similar roles in a team achieving common target).

    What then, should we reward people for? Skill, commitment, tenure…..In a macro sense, this has larger effects…buying power, for instance. And if I am the owner of a firm that has client facing roles, my Western, Arab and Asian Manager are forced to have a different focus.

    Interesting topic.

    Thanks
    Philip

  4. Hi Sandrine,

    HR can begin by applying a common compensation structure irrespective of nationality if a candidate is skilled to carry out the job advertised.

  5. Hi Sandrine,

    I don’t know how much correct is this? But I read somewhere that salary is assigned based on currency rates with employees’ native countries but not on skills.
    Or in other words, Companies take advantage of employees’ origin countries economical conditions.

    • Hi Kashif,

      As I explain in my post above, yes there is an element of that, but it’s certainly not as straight-forward as what you’re writing.

      In reality, it turns out that in many companies in the GCC, certain broad categories of jobs such as labour, retail staff etc tend to be filled by people coming from certain geographic areas such as the indian sub-continent, the Philippines, or Africa for example. People coming with relatively low skills from these countries, end up in jobs which are then broadly paid according to a mix of :
      * the skills,
      * market trend (what other companies are paying for similar jobs – because employers have to keep their salary levels competitive but at the same time not too high compared to competition if they want to be able to sell products and services at a price point which the consumer can afford),
      * and a vague reference to how much the job would pay “back home” to make sure that the net pay is higher than what these employees would receive in their home country, otherwise what would be the point for these employees to be abroad ? These employees still make more, and have an economic opportunity, from migrating to the GCC.

      So in short yes, from that point of view, companies “take advantage” of the employees economical conditions in their country of origin.

      At the same time though, I have a counter-argument that shows that the employee skills are what mostly impact the salary level. Some of my very good friends in the UAE come from India or the Arab world, and they have high levels of skills and great professional experience. Their pay was and is the same as what a “westerner” would get for doing the same, high-qualified job. They work in teams that tend to be more mixed and inter-cultural than in less-skilled roles. These teams operate on a basis where no-one really cares where you come from, and as long as you can do the job, you get the pay for the job, not for your nationality.

      These are the two sides of the coin as I see it. I welcome your thoughts and comments on this. Thanks for asking !

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