UAE companies must know how to deal with pay inflation

The markets, at least locally, have picked back up to an accelerated pace and with this comes the dreaded people mobility.

Companies are hiring aggressively and leaders fear that pay inflation, competition driving up compensation packages as employment markets continue to gain steam and businesses find themselves going head-to-head with rivals for the best talent, is kicking back in.

Escalating pay is a reality that executives don't want to have to face again, but do.

It reminds me of the overinflated dot-com era. These tech companies commanded IPO prices that were unrealistic, as unthinking investors got caught up in the excitement of the market. The opportunity for growth, competitive environment, and the talent shortage is driving chief executives to make equally unrealistic compensation decisions. Salaries have risen out of proportion to the expertise of the talent pool, creating unrealistic expectations among potential employees. Corporate pay inflation is like an auction when people get caught in the thrill of the bidding and overpay.

The issue of "people" took front stage at a recent panel that I moderated called From the Boom to the Future. Chief executives shared their lessons from the previous boom that can be applied to the dawning boom that we are now facing. The need to have great people and recognition that in the previous boom many poor hiring decisions were made, was at the forefront of learning.

In an "after panel" discussion, the topic of pay inflation came up as the chief executives said that salaries in the market were showing upticks, taking them by surprise. They grumbled about toxic past practices seeping back in.

Organisations need to be conscious not to fall back into the costly "pay game" as good employees in active sectors will be getting multiple offers. Obviously the way to do so, is just opt out of pay inflation. But this works only if the whole market colludes. Otherwise, the outlier company will be at risk.

So, the real solution becomes keeping the ones you have. If you don't have a retention process that impresses the best, you won't keep the best.

It is true that employees join companies and leave managers. The line manager is the glue to retain the workforce, as they are the day-to-day connection with the company. Of course pay is a factor, but unless the offers are outrageously inflated as practised as before, research and experience supports the reality that the quality of line manager is central to employee retention and daily performance.

Think of this as a battle against pay inflation. In your organisation what is the line managers' "mission" to win this battle and ultimately drive performance?

This mission should include setting and communicating clear expectations of what the workforce is to accomplish, monitoring the work, providing constructive feedback on how to be better, and recognition of good work. Just as troops in the midst of a heavy battle need inspiration, so do employees - every manager should give attention to being inspirational.

If you are not careful in this battle, in the next one you will again get caught in the crossfire of trying to find and lure new employees to your organisation as you rebuild your workforce. And it does not take much to remember how costly that battle was.

Tommy Weir is an authority on fast-growth and emerging-market leadership, an adviser and the author of The CEO Shift. He is the founder of the Emerging Markets Leadership Center