How companies in the GCC mishandle end of service benefits

Research conducted by Towers Watson in 2010 said that the combined ESB liability of employers in the GCC was around USD 16-17 bn and could increase to over USD 75 bn by 2020. Is there a more recent number?

There is not. I think the reason why they have not issued any more numbers is probably the unclear methodology behind it and the difficulty with validating this sort of estimate.

But whatever that number was in 2010, it is going to be higher in 2014. The drivers for that number are growing at a rapid pace. There is little publicly available data on the matter and that is the reason why we started our survey in 2013.

Everybody says they are doing something to address the issue but in the end, it turns out most are doing nothing at all. We tried to clarify how companies are treating this liability and how much understanding they have on the issue at all.

Your survey found 54 percent of companies are commingling their ESB funds with their working capital. Does that mean that the other 46 percent have set the funds aside or invested them?

No, another 24 percent of HR professionals we surveyed did not know how their organisation's ESB funds were being managed and we believe this percent is also a part of the 'not doing anything with those funds' club.

So actually, the commingling number is closer to 78 percent.

And then there is the 8 percent that said their company has set up a trust. That leaves another 14 percent.

These 8 percent are part of the 22 percent that are doing something with that money, but most are still keeping it inside the company and within their balance sheet, where the risk lies. That is just not the way anybody else does it anywhere in the world. 

This is your employee’s money your toying with, and without asking too. But in the region, 92 percent of employers are used to this bad habit.

And, it is nothing more than a bad habit. Why it has developed into a market practice, only history can tell.

What are or could be the consequences of such a bad habit?

We have seen a lot in 2009, when local companies and multinationals as well were struggling. A large Australian multinational is a good example of what can happen.

They decided to move all the capital from all the subsidiaries, left them cash negative and declared a bankruptcy in Australia.

All of a sudden, the subsidiaries were left with no money to pay their employees' ESB and 2,200 employees in the Middle East were left empty-handed.

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