By Megha Merani
Mergers and low oil prices are forcing companies to trim down workforce. When this unwelcomed situation comes to light, employers must take key steps for effective execution of an outplacement plan
UAE-based SME in the business of making layoffs humane has seen significant growth over the past 12 months amidst subdued macroeconomic conditions.
SikkaLuna helps organisations deal with the complex process of restructuring by effectively executing outplacement plans. This includes preparing those tasked with delivering redundancy or termination news for the difficult conversations, as well as providing coaching, emotional support and placement assistance to exiting employees.
“For the past one year, there’s (been) a lot of uncertainty in the business environment globally and these negative sentiments translate strongly in the local employment market,” the company’s founder and CEO Shirin Patwa tells Arabian Business.
The introduction of value added tax (VAT) has further added to the cost of living and operational costs, Patwa says, adding pressure on organisations to find creative ways to make do with fewer people and less overheads.
“So we are seeing a lot of companies trying to innovate or cut costs drastically – and more often than not, this results to restructuring and job losses. As long as organisations are growing, agile and want to take care of the employees they have to let go, it presents an opportunity for us.”
The spurt in restructuring in the region has driven up demand for outplacement assistance and exit management.
“Most of our revenue comes from companies trying to make the exits humane through outplacements and training their staff to conduct those meetings in the right manner,” Patwa says.
“A large part of our revenue comes from large multinational corporations and large local diversified groups. In the past year our business has grown by 400 percent.”
A large part of our revenue comes from large multinational corporations and large local diversified groups
Key sectors include fast-moving consumer goods (FMCG), financial services, pharmaceuticals and diversified business groups.
Corporate restructures continue to shake the market as the UAE and wider oil-producing Gulf economies withstand the new normal of collapsed crude prices since 2014, tight liquidity from banks and reports of sluggish private sector revenues.
Trefor Murphy, CEO and founder of Dubai-based recruitment consultancy Cooper Fitch, says that restructures have taken place across nearly all sectors in the UAE in 2017 and 2018, including manufacturing, healthcare, pharmaceuticals, medical devices and the financial sector.
“They’ve used the time to consolidate their position and make the restructure and in some cases that meant some imposed or forced redundancies,” he says.
“If you look at banks that have merged as an example, you could probably talk about 10 or 15 percent reduction in headcount.”
Late last month Bloomberg reported that the three-way bank merger in Abu Dhabi between Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB) and privately-held Al Hilal Bank, may lead to about 1,000 jobs being cut.
For banks that didn’t merge but still consolidated for efficiency likely saw around 5-6 percent job cuts. The oil sector also saw a “significant reduction” in headcount, Murphy adds.
Figures from the UAE Banks Federation’s latest annual report said that more than 600 employees were made redundant by UAE banks in 2017 as they trimmed down the number of branches. The layoffs trailed behind already pronounced cuts the previous year.
In its annual UAE Salary Guide for 2019, Cooper Fitch said that the previous years’ reduction in oil prices has caused companies to lose confidence in the market, which in some cases has made them hesitant about making key hires. The report also noted a reduction in the retail and luxury retail sectors in 2018, citing a lack of consumer confidence. However, it predicted improvements in both markets in 2019.
“Lessons have been learned from the past,” Murphy explains, referring to how companies in the UAE now approach staff cuts.
“I think the organisations that have had to lay people off have been very responsible in terms of how they’ve worked with them [redundant employees] and helped them and supported them to get new opportunities,” he says. “HR teams have significantly improved, certainly since the last four or five years in terms of how they do that.”
If you look at banks that have merged as an example, you could probably talk about 10 or 15 percent reduction in headcount
Patwa says most multinational organisations provide outplacement as part of employee benefits worldwide and therefore, also offer the same service to staff in the Middle East.
“Companies are realising that the best, easiest and cheapest way to build an employer brand for themselves is by ensuring that no bridges are burnt towards the end and that the exits are managed well,” she explains.
The expert adds that companies are now realising that their Corporate Social Responsibility (CSR) initiatives also need focus inward and look after the employees that they lay off.
“The employees they are letting go may become their customers, may end up joining their competitors or suppliers, or attend the same industry events. If they leave with a grievance, it can have a direct impact on the company’s bottom line,” Patwa says.
But while most global companies consider this, Patwa says talent practices in the Gulf region “still need to mature”.
“The majority of local HR departments are unfamiliar with the term outplacement, outsourcing exit interviews, being trained to deliver bad news, as well as the impact it creates on the brand name and the profitability of the company,” she says.
Terminations are amongst the “most difficult” exercises for an organisation, she adds. However, while the best practice in a restructure is to go through a well thought-out selection process, in reality, most organisations “don’t put in enough time and effort on selection”, she says.
But humane layoffs are a critical factor for employees that stay on too.
Patwa – who has personally delivered the bad news to some 200 people in her more than 14-year career – explains that if the employees see that their colleagues were not treated right during their last days, it affects their loyalty, motivation, and productivity.
It also doesn’t help if a botched exit causes an employee to leave feeling vengeful. “Vengeance doesn’t have to be something as dramatic as stealing data or installing viruses,” she says.
“It can be as subtle and small, yet strong, as talking negatively about the brand to its customers, employees or future talent. These things have a major impact on profitability. It’s a well-known statistic that a happy employee or customer tells three people [about their experience], but an unhappy one tells 30.”
If employees leave with a grievance, it can have a direct impact on the company’s bottom line
A common outcome also includes former workers posting negative reviews on sites such as Glassdoor, a website where current and former employees anonymously review companies.
“We recently worked with a local office of a multinational company to address this problem as they started accumulating a lot of negative reviews and this was strongly putting off the candidates that they were trying to headhunt for critical roles,” Patwa says.
In one instance, an organisation that took two years to identify the right candidate for an operations lead role, saw him back out due to a negative review.
Cooper Fitch’s guide said that the biggest challenge faced by organisations in 2018 was the retention of their top performing teams and individuals. The consultancy also stated in its report that it did not expect “any significant increase in salary ranges in 2019”.
“As an average, it’s been a soft two years for salaries,” Murphy says. “People that were laid off are certainly going to struggle to get close – or sometimes even reasonably close – to the same package they were on maybe two or three years ago. The high-end expatriate package is not available in the UAE anymore as a rule. Housing allowances have been reduced or limited in some cases.”
Cooper Fitch has also noted a “significant increase” in the number of candidates available in the market. In the unfortunate event where someone loses his or her job, the period required to find a new role has also become longer.
“For people who are here, who are trying to get back into the workforce, they are certainly struggling not just with salaries but the length of time it’s taking them to get something new as well,” Murphy says.
“It’s probably moved from an average of three months to maybe five months,” he adds.
Cooper Fitch saw the number of job applications it received increase by 10 to 15 percent in 2018.
“Because the amount of applications we were getting, which could be 6,000 or 7,000 in a year, across the business, we’ve had to stop advertising the roles,” Murphy says, calling it a “very sizable increase”.
“We simply can’t deal with that number of applicants so we’ve reduced the number of roles that we put on our website and other portals.”
On the upside, demand for new tech talent is on the rise. “We’re going to see a lot of new [job] creation around artificial intelligence [AI], digital, robotics... all of those new sectors are going to continue to grow at a rapid pace,” Murphy says.
We’re going to see a lot of new job creation around AI, digital, robotics. All of those new sectors are going to continue to grow at a rapid pace
“Advisory firms, the Big 4 accounting firms and management and strategy consultancies will all continue to grow. There’s a big push on improving sales teams and supply chain teams so they’re all things that are certainly going to grow next year.”
In-house tax roles are also likely to come up this year as companies shift from outsourcing their tax functions to external firms, Murphy says.
“Overall, I think 2019 will be a better year than 2018 – as an average about 4-5 percent better in terms of activity,” he says, although he expects 8-10 percent less activity in the real estate and construction sectors. “From a salary point of view, we’re probably looking at average 1.5-2.5 percent increases, [although] some will be significantly less than that or more than that.”