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Three ways you can get more from end-of-service benefits in the Middle East

Three ways you can get more from end-of-service benefits in the Middle East

Few regional companies put money aside into separate savings accounts for their ESB fund

Every year, Willis Towers Watson produces its Middle East End of Service Benefits (ESB) survey, looking at the level of provision, structure and delivery of ESBs in the region.

The 2018 survey polled 294 companies and much can be gleaned from their responses to help you consider your approach and strategy around ESBs for optimum returns.

1. How are companies funding their statutory and enhanced ESB liabilities?

Few companies put money aside into separate savings accounts for their ESB fund.

The majority of respondents (around 62 per cent) said that they account for ESBs in local books using local accounting. International Accounting Standards (IAS) were favoured by 21 per cent, while 5 per cent choose to not account for ESBs at all.

When these companies were asked about how they ring-fence money for paying out ESBs, most said that they simply used company assets.

In fact, the research found that only 15 per cent pay for ESBs with money held outside the company. More than half of those that do keep the money within the company reinvest any surplus ESB funds into the business instead of using them to provide extra benefits for their employees.

How to make ESBs work for your company

A simple way to potentially get more from ESBs is to start saving the money for future ESB payouts in a separate savings, mutual or investment account. This does mean diverting valuable resources from use within the company itself, but this does come with three benefits. Firstly, by setting the money apart from your normal business funds, the risk of using ESB funds for business running costs is minimised; secondly, you will be able to earn interest or investment return on the money, which could be used to provide additional benefits for your employees; and thirdly, ring-fencing ESB funds shows your employees that you are committed to keeping the funds safe for their benefit. Some employers in the region committed to setting funds aside in this way following the global credit crisis.

By using interest and any surplus to fund extra benefits, you can give your employees two things that really boost loyalty: generous rewards and a sense of caring.

2. How are companies structuring their enhanced ESBs?

Companies follow set rules to determine who qualifies for certain enhanced ESBs.

Interestingly, half of the survey respondents (40 per cent) provide more than the statutory ESB to some of their employees.

This is on a par with previous years, but the reasons for providing enhanced ESBs have changed. The proportion that offer them primarily as an incentive to retain top talent fell from 46 per cent to 37 per cent. The most common reason remains adhering to local best practice – in other words, following rather than leading the field. Interestingly, drilling down for the UAE specifically the survey data indicates the main reason remains to retain top talent with 36 per cent versus 34 per cent for adhering to local best practice.

Among those that do provide enhanced ESBs, the majority (62 per cent) offer them to all employees. The rest structure this benefit from the top down, with top management and local non-nationals being the prime beneficiaries.

Enhanced ESBs are commonly used to sweeten transfers within the company and redundancies but incentivising key talent is slipping down the order of factors for developing ESB enhancements, with just 12 per cent of respondents citing it as a factor.

Popular approaches for structuring enhanced ESBs

Providing enhanced ESBs can be an effective way of holding on to top talent in a competitive employment market.

It’s possible to make this more of an incentive for excellence by being selective about who you offer them to. Rather than dividing any surplus ESB fund among all employees, companies could consider using it more creatively to incentivise key talent with enhancements.

3. What other savings vehicles are companies offering employees?
Some companies are using long-term savings or retirement plans as an alternative to ESBs.

Employers have long been aware of the positive impact of going the extra mile on employee retention.

Offering savings-focused benefits that extend beyond ESBs does just that. Circa a quarter of respondents reported that they offer employees a long-term savings or retirement plan and, where the law permits, one third are offering these benefits as an alternative option to receiving an ESB.

This is a relatively small minority – and of the 23 per cent that offer a retirement or long-term savings plan, fewer than half (45 per cent) open that plan to all employees. The remainder tend to limit this benefit to local nationals, top management, local non-nationals and general management.

Why additional savings plans can help you beat the competition

With so few companies in the region offering retirement or long-term savings plans to all their employees, this is an area where your company could stand out.

Financial security is a high-priority need for employees and a major driver in seeking alternative employment. Therefore, offering your workforce additional savings plans could be an effective way of staying ahead of your competitors in the battle for top talent.

Putting the funds aside for ESBs into a savings account, rather than leaving them within the business, could provide some additional capital for funding additional savings plans.

Similarly, investing year-end ESB surpluses into employee savings, instead of putting them back into the business, could help to fund employee retirement or savings plans.

Make your ESBs work for you

The increasing need for businesses in the Middle East to attract and retain key talent has made it vital for companies to go above and beyond the minimum requirement when designing their ESB strategy.

Employers can achieve stand-out status by being more creative with the way they structure their enhanced ESBs, which in turn requires some astute financial planning. By separating your ESB funds from normal business funds and investing them in interest yielding accounts, you can promise a cast iron ESB incentive that will attract key talent to your business and keep them there long-term.

A committed approach like this, along with the provision of additional savings and retirement plans, will reap the rewards that every successful business values in terms of employee loyalty.

Steve Clements is the director of Global Services and Solutions Central and Eastern Europe, Middle East and Africa (CEEMEA)

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