Data shows that companies which leverage End of Service Benefits (EoSB) with their employees have a greater percentage of longer tenured staff. However, a recent survey has found that in the MENA region, the practice is largely underutilised.
We sat down with Samer Abdel Kader, head of SEI Investments Middle East, to discuss why that is and what more could be done to retain key oil and gas talent.
O&G: Only 11% of respondents said they leverage EoSB as a retention tool. Why do you think is this number so low?
Kader: Most companies in the oil and gas sector continue to use traditional methods such as bonus and cash incentive rewards. The recent sudden and sharp drop in the price of oil will naturally impact the oil and gas sector in a much more direct way than in other sectors.
Given this new reality, there is undoubtedly heavy pressure on companies to find more cost effective ways of running their business. Alternative methods of reward will need to be established and tools such as ‘End of Service Benefit’ schemes, which have a meaningful impact on retention rates and come at a lower cost than the alternative methods of reward, will become more in vogue.
Encouragingly, 54% of oil and gas sector respondents indicated an interest in establishing such schemes in our survey, which was taken prior to the start of the drop in the price of oil (so the interest in such a scheme will likely be higher than ever).
O&G: What are the overall benefits of EoSB?
Kader: EoSB schemes can help take significant pressure off CFOs who are trying to manage large scale growth with profitability by reducing short term cash commitments in favor of long term rewards linked to tenure and performance.
Additionally, the company can realise significant contribution savings towards funding their EoSB commitments through a scheme which generates returns over the long term.
For HR executives, EoSB schemes can provide a differentiated reward model that helps them attract and retain talent in what is currently a very competitive employment landscape. It helps them leverage one of the biggest payments made to their employees into a tool that encourages employee engagement and retention. They promote a culture of best practice and improve corporate governance standards in an era where employees are becoming increasingly aware of their rights.
For employees, these schemes reward loyalty and productivity. They also offer the reassurance of knowing that their EoSBs’ are safeguarded and protected against adverse market conditions.
O&G: What type of companies are more likely to utilise EoSB?
Kader: The type of oil and gas companies to offer these benefits are more likely IOCs and independent firms. IOCs will typically have a well-established pension plans for their employees in other jurisdictions, such as the US, UK, Europe, parts of Asia and elsewhere.
Although there are some differences between pension schemes offered abroad and End of Service Benefit schemes for a MENA-based entity, these companies will likely understand how important it is for their employees to have a mechanism whereby longer tenure and higher compensation earned through positive long term performance can produce a greater benefit for employees at retirement or when leaving the company. Local or national firms typically have not had exposure to pension schemes and therefore the awareness and acceptance of such schemes can be a bit more difficult.
Smaller independent local firms take huge interest in EoSB for a number of reasons. Firstly, these firms are at greater risk of losing their top performers to bigger international firms. Therefore, they tend to be the keenest in seeking a differentiated benefit model that will help them retain employees who may be swayed by the lure of an international employer with a well-recognised brand name.
Secondly, these firms are interested in the protection an EoSB scheme can offer their employees and to their local sponsor. Smaller firms that do not have well diversified sources of income are at greater risk of having cash flow difficulties during a downturn. It is precisely at these times that these companies are forced into restructuring their employees and require cash at hand to pay their employees’ EoSB liabilities. Employees at such firms face a higher risk of not receiving the full amount owed to them for their EoSB payouts. In extreme cases, the local sponsor may be personally liable to pay these employees. Therefore, both parties are more likely to pressure their firms into establishing such a scheme.
Ultimately, a well-designed and well-run EoSB scheme can vastly improve a company’s corporate governance standards – a good reason for any type of company to establish these schemes.
O&G: What are the consequences of not fully leveraging EoSB’s as a retention tool?
Kader: EoSB is one of the largest payments to employees, yet in most companies it is underutilised for recruitment and retention. It is often not even highlighted as a core component of total reward. In other parts of the world, stock options are utilised as deferred bonuses, but these aren’t available to many in the Middle East, so most companies rely on traditional methods of reward, such as cash bonuses and allowance increases to retain employees.
However, rising costs of housing and staff salaries in the region (combined with the impact the drop in oil revenue is having on Oil & Gas companies’ bottom line) are forcing companies to shift away from these costly traditional methods to more creative, alternative approaches.
