At least four years on from the onset of global recession, the employment environment in the UAE has settled and the widespread terminations of a few years ago have passed. As the quiet summer period draws to an end, our focus turns to employment practices and what's on the horizon for UAE employers and employees.
As the employment arena continues to develop in the UAE, more and more employers are moving beyond labour law minimums in relation to employee entitlements and practices. The natural progression in this evolutionary process leads employers to offering employees equity based incentives. In order to maximise an employee's potential and input, companies need to encourage employees to work like they would if they were an investor in the business; "work like you own the company".
Long term incentive plans help to align the interests of employees with the interests of investors. With the appropriate incentive mechanisms in place, companies can encourage increased returns for investors whilst providing long term remuneration strategies for employees.
As ever, companies continue to face the challenge of maximising employee input with minimum expenditure. Under a long term incentive plan, employees receive a financial reward based on the level of success of the employing company or the group parent company over a set period, typically three to five years. A long term incentive plan is often structured as a share option or some other right to acquire a share in a company at a future point in time.
Under a long term incentive plan employees are effectively given the opportunity to acquire, at a future point in time, a stake in the employing company or parent company at a discount or free of charge and, therefore, without assuming the financial risk. There can be legal and practical difficulties in offering shares to employees locally under an incentive plan in the UAE.
However, incentive plans are extremely flexible and can be structured on a cash basis to replicate share-based plans so-called "phantom" share schemes. Many locally based companies have chosen to operate their employee incentive arrangements in this way. There are a number of advantages to cash-based plans in that they can be far simpler and are more cost effective to implement and operate.
They also avoid dilution for shareholders and company law restrictions. In structuring a relevant and appropriate long term incentive plan for its employees, a company will ultimately need to determine:. As UAE employers continue to adopt global best practices, it seems inevitable that this trend will extend to areas of remuneration practice.
Although employers who embrace equity based incentivisation as part of the remuneration package now can still be a step ahead of the game, it seems that it will be only a matter of time until equal incentives, particularly at management level, will form an integral part of the remuneration package in the UAE.
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The options A long term incentive plan is often structured as a share option or some other right to acquire a share in a company at a future point in time.
Considerations in plan design In structuring a relevant and appropriate long term incentive plan for its employees, a company will ultimately need to determine: A final word As UAE employers continue to adopt global best practices, it seems inevitable that this trend will extend to areas of remuneration practice. Do you have a Question or Comment? Interested in the next Webinar on this Topic? Click here to register your Interest. Events from this Firm. More from this Firm.
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