How to implement the perfect employee incentive scheme

After successfully starting a business in Dubai, entrepreneurs have to shift their focus to their company’s long-term success. One major aspect of ensuring their Dubai startup’s future growth is retaining high-performing employees. The labour market in the UAE is extremely competitive right now, which is why employers turn to incentive schemes to keep their top talent from seeking greener pastures. 

Business startups in the UAE tend to offer two main kinds of incentives to employees: cash bonuses and stock ownership. 

Cash bonuses 

Simply put, cash bonuses are pre-set payments that are awarded to employees when their performance empowers the company to fulfil certain objectives. Some companies choose to offer annual bonuses to staff; others stagger payments over a more extended time period, such as three to five years. This latter approach is popular among UAE startups, since it complements existing labour contracts and encourages a long-term focus. 

Cash bonuses are relatively straightforward to set up, considering that they don’t affect the equity held by existing shareholders. In contrast, companies that offer employees shares as rewards for good performance can run into complications, which are described below. 

Stock ownership

 Many UAE startups now offer top employees a share in equity in a bid to encourage them to think like company owners and work harder to ensure higher profits. Typically, employees are given shares at a predetermined price after they succeed in meeting certain performance targets. However, many companies set up in the UAE are hindered from offering stock options to employees, due to legal restrictions on ownership.

This has led to a rise in popularity for phantom stocks.  A phantom stock program is based on a contractual agreement between the employer and employee that the latter will receive cash bonuses amounting to the value of a certain number of their company’s shares. The bonus can increase over time as the company stock rises. 

Important factors to consider 

 Drafting an incentives program requires careful consideration, particularly if an entrepreneur has recently set up a business in Dubai. The incentives should align with the company culture, business strategy and operational framework in order to be sustainable in the long term. All major stakeholders should be consulted before incentives programs are announced to employees.

 Business consultants in the UAE also emphasise the importance of striking a balance between the company’s and employees’ needs. For the incentives to be mutually beneficial, employees should be rewarded for those performance measures that strategically contribute to the company’s success. 

It is recommended that entrepreneurs identify how their executives and top employees contribute to their bottom line and then communicate the rewards for making those contributions. It is also important for the performance targets to be achievable; otherwise, employers risk frustrating their top employees and compromise the retention goal of the incentives. 

Do you have more questions about how to start a business in Dubai? Book an appointment with our expert consultants at Decisive Zone to get a free consultation.