As living expenses soar worldwide, companies in the UAE are revisiting their compensation strategies, adopting scientific models based on global cost-of-living indexes to set salaries for expat employees, according to HR experts. This shift marks a departure from the traditional negotiation-based approach.
Mahesh Krishnamoorthy, Managing Director of the globally operating HR firm Core Integra, noted, “Salary levels are getting increasingly rationalized in the UAE, with employers looking at the cost of living indexes at a global level while negotiating and fixing basic salaries for expat employees.” Previously, salary discussions often relied on demand-supply dynamics, but companies are now employing more scientific methods.
The cost-of-living index, which considers the prices of essential consumer goods and the prevailing average income, plays a crucial role in these adjustments.
For instance, the UAE’s cost-of-living index stands at 72.3, with an average monthly income of $4,097 and a purchasing power index of 88.6. In contrast, Saudi Arabia’s index is 51.8, and India’s is 24.6, reflecting significant differences in living costs and incomes.
Krishnamoorthy emphasized that while salary rationalization is gaining traction, companies still offer attractive perks and incentives to lure top talent globally. These include premium lifestyle benefits and international connectivity, making the UAE an appealing destination for professionals from regions like the US, UK, Canada, Europe, and India, especially following large-scale layoffs by multinational companies.
A Dubai-based HR executive added, “Expat candidates also seem to be happy with this (index-based) model as they get a clear picture on their earnings and savings, rather than just an estimation.” Companies utilize various data points such as rent, transport costs, groceries, schooling, and lifestyle expenses to ensure accurate salary benchmarks. Comprehensive research reports are available to employers, providing detailed cost comparisons during negotiations.
One of the key challenges in this approach, according to Krishnamoorthy, is compensation benchmarking. He stated, “There is a hidden bargain on the cost-of-living which employers and employees have to align as part of the offer negotiation process.” This alignment is crucial for accurate and fair compensation packages.
The new salary model is rapidly being adopted amidst a talent influx, particularly from Western nations and India. Many international companies, as part of their restructuring plans, are relocating employees to Middle Eastern cities like Dubai and Abu Dhabi, which are emerging as new growth hubs.
Despite the transition to international compensation models, HR experts acknowledge that the process is still evolving. UAE companies often hesitate to offer equity participation or profit-linked bonuses, especially at senior and mid-levels. Krishnamoorthy explained, “Even today, [at top and senior levels] it largely goes by practice of individual bargaining. There is an ask for equity participation or share of profit participation as happens in US and SE Asia but [companies in the UAE] still prefer the fixed compensation plus annual incentive model, with a couple of perks/benefits for senior folks thrown in.”
Nevertheless, the UAE remains a magnet for top talent globally, including from the US and Europe. Krishnamoorthy highlighted, “In today’s ever-evolving global landscape, the factors that make a location attractive extend far beyond mere cost considerations. Factors such as quality of life, safety and security, besides the presence of robust infrastructure and seamless connectivity, have become key determinants of a location’s allure.”
According to Mercer’s annual cost of living city ranking for 2024, Dubai is the most expensive city in the Middle East for international employees, ranking 15th globally, up three places from 2023. Other regional cities like Tel Aviv, Abu Dhabi, Riyadh, and Jeddah follow in the rankings, reflecting the increasing cost of living in these areas.
As companies continue to refine their compensation models, the UAE’s position as a leading destination for global talent remains strong, driven by its dynamic approach to salary adjustments and its attractive living conditions.
