KUWAIT: With the increased cost of living and more expats now working in the GCC than ever before, EoSB payments no longer seem adequate in terms of a final settlement. SEI can work with corporates to provide enhanced End of Service Benefit plans that reward high performance or tenure, says Samer Abdel Kader, Head of SEI Investments (Middle East). In an interview with Kuwait Times Kader says SEI can help companies reduce their exposure to risk by helping to separate the funds for EoSB payouts from those on the balance sheet; thereby ensuring employees get their dues even in the case of corporate insolvency. Excerpts:
Kuwait Times: Can you explain about end of service benefits?
Kader: End of Service Benefits or EoSBs, are a payment made by employers to their employees once the employees term of employment comes to an end, in lieu of receiving a pension. In the GCC, EoSBs are an entitlement for expat employees who are not eligible for a pension from their country of employment, regardless of whether or not they receive a pension in their country of origin. EoSBs are calculated as a percentage of basic salary for every year of service provided by an employee to their employer, with an increase in that percentage once a certain tenor of employment has been exceeded. These benefits are covered by the Labor Laws of the various jurisdictions in the GCC. While there are some differences in the rates or percentages used to calculate EoSBs from country to country, the concept of EoSB and the Labour Law provisions covering them are mostly the same across the GCC.
With the increased cost of living and more expats now working in the GCC than ever before, EoSB payments no longer seem adequate in terms of a final settlement. SEI can work with corporates to provide enhanced End of Service Benefit plans that reward high performance or tenure. In addition, SEI can help companies reduce their exposure to risk by helping to separate the funds for EoSB payouts from those on the balance sheet; thereby ensuring employees get their dues even in the case of corporate insolvency.
KT: What are the latest findings in Kuwait?
Kader: Survey respondents from Kuwait were generally optimistic about the economy, with 54% citing business as usual despite the slump in oil prices. 82 percent also projected headcount growth in light of growing attrition rates (25 percent of respondents confirmed an attrition rate of 10 percent and above). This clearly shows that while the oil prices have had a strong impact on the short term, the general consensus is that companies are on a path to continued expansion.
With regards to Human Resources, 75 percent of respondents cited Talent Management as their top HR goal, with 33 percent interested in a better solution to EoSB management. Enhanced EoSB plans are often overlooked as an asset when it comes to managing attrition rates.
The most notable result was that Kuwait had the largest appetite for an outsourced solution to investment services at 46 percent.
KT: What are the main challenges that face the market in Kuwait?
Kader: Despite the strong shift towards better compensation and benefits packages, many companies continue to use traditional methods of reward such as bonus and incentive schemes, with 96 percent of respondent companies in Kuwait using this common, yet costly method. However, bonus-centric remuneration packages frequently overlook a critical component of a reward strategy – a mechanism to encourage employee retention besides the additional goodwill.
Much of the developed world has introduced proportions of bonuses in the form of deferred bonus structures or stock options. Whilst in the Middle East, bonus payments tend to remain cash lump sums, with the common occurrence of employees resigning immediately after the bonus payment.
For Kuwait, where the demand for talent continues to be robust despite the increasingly difficult economic climate, attracting and retaining talent will remain a challenge and it is imperative that employers seek alternative ways to address this.
KT: How can Enhanced EoSBs/savings plans help with retention and recruitment costs?
Kader: In this challenging economic climate, CFOs are challenging HR Directors to utilize their resources more effectively and the most obvious is to recognize EoSB and Savings Schemes as part of an employee’s total compensation and reward. Unlike traditional methods of reward (i.e., bonus payouts) which can prove costly and do not necessarily ensure the loyalty of employees, enhanced EoSB or savings plans give employees a savings goal to reach for while encouraging performance and productivity. Savings plans can be matched or topped up by employers and provide employees with a sense of security that basic EoSB plans cannot offer. Plans like these can help boost retention rates as well as lure top talent looking to stay in the region long-term.
KT: Talk us through best practices for EoSB management in the region.
A best practice approach to EoSBs is based on separating assets from the balance sheet and “ring fencing” them in a trust account so the employee’s entitlement is protected, and then making regular contributions as the accrued benefits continue to grow. A scheme established for such a purpose can support the CFO and the Finance team in improving dollar-cost productivity by providing insight for planning and managing risks associated with these liabilities. It can also help companies assess the impact of attrition rates and headcount growth on EoSB liabilities and potentially realize long term contribution savings in the case of a well-managed scheme that is invested.
Another key benefit is the encouragement of employee goodwill by utilizing EoSB as a component of total reward. This can be achieved by designing reward structures that allow for higher employer EoSB contributions that recognize performance and loyalty. In addition, companies can launch schemes which allow employees to make their own contributions and select investment funds, helping to create a long term savings structure that their employees would not be able to access on their own. In addition, employees can rest assured that their benefits are protected should their employer face financial difficulties in the future. All of this results in greater employee loyalty. Our report shows that companies in the region that have launched EoSB/ Saving schemes enjoy significantly higher employee retention rates than those who have not.