15 Jan 2013


Authored by: Alexander McGeoch


A Lawyer's view

Major international corporations are generally enthusiastic adherents of the principles of “best practice” when it comes to personnel management and support their HR officers accordingly. However, within the UAE too many companies, it seems, are still inclined to view the recruitment and management of staff as a tiresome, and indeed costly, distraction to the serious business of making money. As a consequence, expenditure on the preparation of good quality employment contract documentation or the enhancement of staff benefits, to secure loyalty, promote efficiency and reward effort, is by no means seen as a priority. It is to these latter companies that this article is addressed  -  not in a spirit of criticism (since the “profit imperative”, that inevitably predominates in the thinking of all business managers, is readily appreciated) but more as an invitation to consider the company’s human resources as an “asset”, to be properly looked after just like any other asset of the company.

From where does the expression “best practice” originate? And what does it really mean? The general supposition is that the term first gained currency among management consultants and other corporate “gurus” in the latter half of the last century. As to its meaning, the following formula might serve:  “A set of guidelines, ethics or ideals that represent the most efficient or prudent course of action”. For present purposes this definition may be reformulated in some such terms as “The engagement and treatment of employees in a manner that is (a) compliant with the laws of the land, (b) consistent with fair and reasonable company policies and (c) designed to secure dedication, enterprise and loyalty”.

These principles may seem straightforward enough but it is surprising how widely they are ignored. To take first, by way of example, the engagement of staff: it is by no means uncommon to find that an individual has been recruited by a company under a letter of appointment, issued in (say) the United Kingdom, the United States or France and governed by the law of the country of issue, on terms that that new employee will work with the company’s Dubai subsidiary (i.e. a quite different legal entity). No doubt, in the mind of the parent company managers, this distinction does not make much difference – both parent company and subsidiary being substantively in common ownership and within the same corporate group.  In fact, however, the difference is of major significance. In particular, in the event of a contentious termination, the employee may well, in such circumstances, be able to argue that he (or she) has acquired parallel rights – that is to say, both under UAE law (against the subsidiary company) and under the laws of the country in which the employee was recruited (against the parent company).

It is again surprising (to legal practitioners such as ourselves) how many well-established local concerns (and even, in a few cases, international companies) still rely exclusively upon the Ministry of Labour (or, as the case may be, relevant free zone) standard form employment contracts, when engaging new staff.  These standard form contracts are no doubt an effective regulatory device for ensuring that companies in the UAE are reminded of their minimum statutory obligations towards the persons they employ. However, from an HR “best practice” point of view, the standard form contracts are quite seriously defective. They do not, for instance, make any allowance for a detailed description of the employee’s responsibilities, nor do they address such matters as annual leave policies, health care, training programmes, opportunities for promotion or the ownership of inventions and other intellectual property rights. Neither do they deal (expressly) with such post-termination issues as non-competition, solicitation of staff or the continuing confidentiality obligation.

The question of staff remuneration structure is obviously a matter of key concern for all employers and there are plenty of professionals (e.g. lawyers, accountants and specialist HR consultants) available to give guidance in this area. It is remarkable, however, how many companies still see staff remuneration in terms of a “flat” monthly salary/wage payment for each individual on the payroll. The range of possible benefits, in the form (for example) of bonus schemes, sales commissions, “new business” introduction fees, share options, company pension plans, private health insurance, club memberships and allowances of various kinds, are never even considered. As a result, the challenge of developing a coherent and multi-faceted company remuneration policy designed to raise morale, increase motivation and engender loyalty among staff members  -  all in accordance with “best practice” principles - is never taken up.

The predictable argument used by companies against the implementation of “best practice” improvements in staff remuneration is that it “costs money” and hence impacts negatively upon the profit share of investors. Superficially, this argument carries weight. However, in reality, the apparently simple equation upon which it is predicated is a demonstrable fallacy.

The fact is that companies which follow a “single element” remuneration policy very often find themselves slipping behind market rates. An obvious consequence of such “slippage” is that company employees (including key staff members) soon start leaving, either to join competitor concerns within the UAE or moving abroad to countries where the prospects are perceived to be brighter. It is equally obvious that when staff leave they have to be replaced and there is, inevitably, a considerable cost factor involved, both in terms of “visible” costs (e.g. administrative fees and recruitment agency charges) and “invisible” costs (e.g. loss of productivity during new staff induction period, general dislocation and wastage of management time).

Managers of companies that are prone to staff attrition frequently ask the question “How can we prevent our employees from leaving us?” The question they should be asking is “How can we enhance staff benefits in an imaginative way so that our employees stay with us for a long time?” Now that the UAE government authorities have made it significantly easier for employees to move from one employer/sponsor to another (in particular, by removal of the old “No Objection Certificate” requirement), the answer to the first question is “Not much”.  The answer to the second question will, hopefully, be readily apparent to any manager who reads this article. In other words: “Introduce well-structured remuneration packages, in line with the principles of best HR practice”.

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the develop jurisdiction of the UAE.