eFinancialCareers

Rules forbidding the issue of stock options to expats in the Middle East are a major deterrent to foreign talent, so are banks offering any alternatives?

The concept of Employee Stock Ownership Plans (ESOPs) is a standard part of compensation packages in developed financial markets like the UK and US, but laws in the Gulf mean that expat employees are forbidden from owning stock in local companies.

Lynda O’Mahoney, senior manager, corporate fiduciary services at Standard Bank, says: “As demand in the Gulf region for talented and experienced employees increases and retention strategies become ever more critical, the benefits to companies of ESOPs and other long-term incentives is more evident.”

And getting a stake in the company is a lucrative business, reckons Tim Knight, head of compensation and benefits at the National Bank of Abu Dhabi: “In a typical non-stock compensation package you have your base and discretionary bonus, which is usually 100% of salary. A stock-based package will give you five times that, and it costs the company nothing – typically 1% of share capital.”

And IPOs are plentiful in the Gulf region currently. A recent high-profile flotation, at $2.8bn, was that of the Saudi Al Inma Bank, which was the largest in the kingdom’s history. Under current law, it’s unlikely that expat employees will see a slice of the profits.

But Knight says the idea of ‘phantom stock’, where employees are given artificial shares that move in line with the firm’s actual equity, is increasingly catching on, in a bid to attract and retain expat talent.

“The Middle East is crying out for equity-based compensation. We can’t keep on hiking pay, or offering more and more generous allowances. Stock is the most effective way of keeping hold of staff,” he says.

Declan Ball, global head of corporate human resources at EFG-Hermes, thinks a law change is inevitable: “The market will drive the changes through. In a region with high staff turnover, giving employees a stake in the company is key to keeping them there. And it’s standard practice in the UK ad the US, so if you want to attract people from these markets it has to be done.”

A recent study by Mercer suggested that companies offering ESOPs saw an increase in sales, employment and profitability of 2.4% over firms that didn’t offer such compensation.