Mercer's report on UAE employment trends shows rising cost of expatriate workers

The report shows that average salaries for expatriates rose by over 6% last year. Daily allowances rose by over 20%, and multinationals now pay an average rate of US$ 475 a day for executive expatriates on short-term assignments in Dubai.

'Much of the increase is due to the enormous hike in accommodation costs - both in hotels and rented property,' said Dr Markus Wiesner, head of Mercer's UAE operations. Hotel charges at the top end of the market have risen from US$ 273 to US$ 393 in Dubai in the last two years alone.

The government's new cap on rental increases should help to manage real estate costs though hotel rates are still outside this remit. To cope with these increases, many multinationals are now giving cash allowances to their expatriate employees in lieu of accommodation.

Meanwhile, inflation at over 10% is driving up salaries - exacerbated by the ongoing difficulties in attracting and retaining skilled labour in an expanding economy where employment is growing at more than 8% annually. 'Although the government is investing in education and local skills development, the current shortage of locally-based management skills is putting pressure on multinationals to continue to support expatriate assignments,' said Dr Wiesner.

Another discernable trend in response to salary inflation is that companies are now focussing more strongly on the total rewards concept, and bonuses and performance-related pay now represent a higher proportion of the average reward package than previously.

Local salary data shows there continues to be a considerable gap between base salary rates offered to locally-based and expatriate employees. These vary from 5 % difference in favour of expatriate senior managers to as much as 80% difference in favour of expatriate professionals. 'At present, expatriate professionals can bring more years of service and greater depth of experience to their assignments, and companies pay a premium for this,' said Dr Wiesner. 'There is also the expectation of compensation for relocation, and this is often reflected in the salary level of expatriates.'

Dr Wiesner also observed that in local companies there has been a marked shift from a lack of salary structures to greater formality. 'Local companies tended to operate with a fairly basic HR infrastructure but with Dubai's rapidly expanding business environment, local companies see the need to adapt and align their infrastructure more closely with international employment models.

'As a result, we're now seeing heightened interest in establishing more effective systems and processes. These can extend from new IT software to formal reward structures and salary review processes,' he said.