The Sun Continues to Shine on the Middle East

At the moment, every day begins with yet more highly unsettling news emanating from financial markets on both sides of the Atlantic, with reverberations noted all across the globe. As even the most ardent optimists are forced to severely readjust their forecasts for the US and European hotel markets, many protagonists are looking east for possible salvation. Some gaze towards Russia and the CIS countries, where the abundance of natural resources coupled with surging hotel room demand (especially in the secondary and tertiary cities) continues to paint a rosier business picture. Others are looking further south towards the Middle East, where a combination of oil wealth and sheer ambition make it seem like there is no end in sight for the hotel business.

The centre of growth as well as the regional headquarters for most hotel management companies in the Middle East is Dubai, an unprecedented success story that continues to astound. For some time hoteliers on both property and corporate office levels were flocking to Dubai to enjoy the combined benefits of tax free salaries, superior quality of life and good career opportunities. Despite the recent increases in living costs and infrastructure issues such as traffic congestion, Dubai still ranks strongly as a desirable port of call for hoteliers: a place where business continues as usual; a place that can finance its own development.

In the past, we have reported on soaring rent and housing costs in Dubai and the lack of adjustment in terms of hotel property-level salaries. With hotel development opportunities stagnating in the U.S. and Western Europe, we have decided to focus on one of the catalysts for Dubai’s incredible development pipeline: the regional developers for some of the major international hotel management chains. On one hand, we would like to shed some light on how these people are remunerated. On the other hand, it is interesting to see how the elements of their salary packages have changed in the face of increased costs. To this end, we compared salary data for the Regional Vice Presidents of Development of four international hotel management companies from 2006 to 2008.

VP Development Middle East	2006	2008	% increase
Average Annual Base Salary	$110,781.25	$154,030.31	39%
Average Annual Target Bonus	40%	41%	3%
Average Housing Allowance	$47,000	$53,364	14%
Average Annual Car Allowance	$14,133	$16,772	19%

At a first glance, this looks like a healthy salary package with significant increases for most elements. However, it is useful to take a closer look:

A 39% increase in base salary over two years would be considered quite decent in most economies. However, with inflation around 9.3% for 2006 and 11.1% for 2007 (AME info), the real increase is much less.

VP Development Middle East	2006	(infl. adj.) 2008	% increase
Average Annual Base Salary	$110,781	$126,845	14.5%

After adjusting for inflation, we find an increase of 14.5% over two years (a far less astronomical figure, but a decent one nonetheless).

The average housing allowance increased 14% over two years. Rent increases were capped at 7% in 2007 and 5% for 2008, which could have led to a maximum 12.35% increase in rent over two years. In spite of reports of some rents rising beyond the caps, this seems like a fair increase as well.

Based on the above analysis, we find that the salary packages for hotel developers in the Middle East remain strong and inflationary pressures have been largely countered through increases in pay. Now, how do these salaries rate in an international comparison?

2008	VP Development United States	VP Development Europe	Dir. Development Russia & CIS	VP Development Middle East
Average Annual Base Salary	$150,322 gross	approx. $230,000 gross	approx. $150,000 gross	$154,030 net
Tax rate	approx. 40%	approx. 40%	13% flat tax	none
Housing	No	No	Yes	Yes

At first glance, the Middle East base salary might not look that impressive, but of course it is tax free. The U.S. and European base salaries would be greatly reduced by high income taxes while Russia’s 13% flat tax for everyone does not put much of a dent in people’s personal income. In addition, the developers in Russia and the Middle East are on an expat package, which means that housing is included. Finally, for the Middle East and Russia, a large proportion of the total compensation stems from higher bonuses that are much more likely to be realized in such active markets.

It is hard to compare these numbers directly as the cost of living varies greatly between these regions. Moscow, where most of the regional hotel developers for Russia/CIS are based, continues to be the most expensive city in Mercer’s annual cost of living survey. In contrast, the relative cost of living has decreased significantly in the U.S. due to the devaluation of the dollar. Since the United Arab Emirates Dirham is pegged to the U.S. dollar, both Dubai and Abu Dhabi figure significantly lower on the ranking as well.

Thus, although Russia and the CIS are attractive, we have found that the Middle East continues to be one of the most lucrative markets for hotel developers for the time being. It remains to be seen how much of a knock on effect the predicted downturns in Europe and the United States will have on this region, but at the moment, the future is still bright.

For a list of the latest HCE compensation surveys please see the following link:
www.hvs-executivesearch.com/CompensationConsulting/Reports