Transforming talent management and rewards in the Middle East's energy industry  

The Middle East energy sector plays a crucial role in the global energy landscape due to its vast reserves of oil and natural gas. According to BP, the Middle East accounts for 31% of global oil production, 18% of gas production, 48% of proved oil reserves and 40% of proved gas reserves. ¹  Naturally, that makes the Middle East region the home of some of the world's largest oil and gas producers, including Saudi Arabia, Qatar, Iraq, Kuwait, Oman, and the United Arab Emirates. These countries possess significant reserves and have the capacity to produce and export large quantities of energy resources, which makes a profound impact on the global energy landscape. Fluctuations in oil prices, supply disruptions, and geopolitical tensions in the region can have significant implications for global energy markets, affecting energy prices, investment decisions, and energy security worldwide.

The energy sector is a vital component of the Middle East's economy with oil and gas exports generating significant revenue for governments, which in turn fund infrastructure development, social programs, and economic diversification efforts. As the world transitions towards cleaner and more sustainable energy sources, the Middle East faces challenges in adapting its energy sector. Diversifying the energy mix, investing in renewable energy, and reducing carbon emissions are key priorities for the region to ensure long-term sustainability.

With the continuous uncertainty and turmoil in other parts of the world (political instability, conflict, inflation, COL crisis, etc.) the relative stability of the GCC continues to make the region an attractive prospect for investors and employees alike. The short- and mid-term prospects have been given an additional boost with Russian oil and gas exports to Europe being replaced by products from the Middle East.  Increased oil and gas exports translated into $320bn additional oil revenues for the region in 2022(IMF) with forecasts that suggest, cumulatively this number may rise to circa $1.4trn over the next four years. With that said, given the ongoing conflict in the Middle East and tensions in the Red Sea², CNBC reports  that these two events could  disrupt global oil & gas supplies impacting prices and energy security globally.³

With these short- and mid-term export prospects it is unsurprising that key oil and gas exporters are driving to maximize earnings from these products whilst at the same time investing to future proof their economies with a focus on cleaner energy technologies, including renewables and hydrogen, at both a local and international level. The United Arab Emirates recently announced they aim to triple their renewables base by 2030 backed by $54bn of investments. Coupled with this economic ‘oil’ boom, some GCC countries have announced changes in policy to attract top non-national talent by way of golden visas and the availability of freehold properties. The ongoing nationalization push across the GCC continues with companies competing to attract and retain top talent.

The energy industry continues to compete with other sectors for experienced/top national and non-national talent.

For national talent, competition for energy employees in the private sector is coming primarily from other sectors including engineering consultancies and technology. We also continue to see competition for national energy talent being attracted by Government Vision programs (UAE vision 2031, Saudi vision 2030 and Qatar vision 2030).

With regards to non-national talent, in many instances we are seeing energy employers preferring employees that have previous Middle East experience, reducing the available talent pool.

Given the increased competition for energy talent in the region we are encouraged to see that Saudi Arabia and Kuwait lead the pack globally in terms of the number of enrollments for petro-technical degrees, although we note that the absolute volume of graduates in petroleum engineering globally has dropped by over 60% since 2014 (Lloyd Heinze, a professor at Texas Tech University, who does an annual survey of petroleum engineering programs.) Several global studies cite that the oil and gas industry is not as attractive an industry as others⁴ for recent graduates. That being said, the oil and gas sector still plays a crucial role in the economies of many Middle Eastern countries and continues to offer attractive opportunities for young nationals. The sector provides high-paying jobs, career stability, and opportunities for professional growth. Additionally, the sector’s importance in the region makes it an attractive field for nationals interested in contributing to the development and advancement of their countries.

Based on our extensive experience working with clients in the energy sector in the region, we have observed a trend by energy firms across the Middle East to create efficiencies and optimize their operations to manage costs, become more market competitive, and drive shareholder value. This is leading to a renewed focus on performance management where low performers are being ‘managed out’ and time and attention is being given to retain those generating the most value to their organization.

One area where Middle East energy firms should prioritize in their quest to retain their top talent and provide a meaningful employee experience is to develop a meaningful lifestyle working contract. Employees view the current work-life balance as being out of kilter and employers will need to give time and attention to improving this balance in a tight labor market.

With an increased focus on driving performance, based on the conversations we are having with our clients and the work we are doing for them, we have observed Middle East energy organizations reappraising their compensation philosophy to align with their drive for performance and the corporate mandate to manage fixed costs. This is leading to an increase in the segmentation of rewards by employee populations and a move away from a 'one-size-fits-all' model. Additionally, we note that the local energy players are looking to further their push to 'pay for performance' and align to market norms by providing select employee populations/job families with short-term incentives above the annual bonus plans, thereby reducing their need to offer higher than market fixed-cash remuneration packages and aligning to employee expectations.

Last but not least, we observe a growing trend in the Middle Eastern oil sector: the introduction of cash-based long-term incentives (LTIs), whose primary objectives are to retain and recruit top talent and employees with in-demand skills and/or knowledge, and to ensure that such individuals remain with their current employer for a longer period of time.

Furthermore, LTIs are introduced to align the long-term goals and strategy of the executive team/leaders with that of the shareholders. In most cases, the plans are ratable or cliff-vested over the course of three to five years.

Like many of their international counterparts, Middle East energy organizations are looking forward to achieving carbon neutrality and a cleaner future. This is taking place in the form of many initiatives, including net zero agendas, investment in increasing capacity of cleaner products (like LNG), investments in green/blue hydrogen, and investments in renewables both locally and internationally (mostly solar in the region). With that said, organizations are also re-looking at their Employee Value Proposition to make sure it aligns with the times and what their workforce expect. Studies show that employees tend to stay at organizations that provide a strong sense of purpose, which has incentivized many companies to upgrade their Employee Value Proposition to one that is more aligned with the new generation coming into the workforce’s aspirations and requirements towards a greener, cleaner future.