Workforce Planning Policies Challenge HR in Saudi Arabia

By Jeff Leeth April 21, 2015
The demand for skilled talent in Saudi Arabia continues to far exceed the supply of its national talent pool. As major local businesses grow more complex and sophisticated, the demand for premium-grade, internationally experienced executive talent remains strong.

However, the Saudi government is under tremendous pressure to employ significantly more Saudis. Expatriates account for a large proportion of the workforce (10 million compared to a total Saudi population of 31 million). Seventy percent of these expatriates are low-skilled laborers. In order to encourage promotional opportunities and growth in Saudization—the official national policy of replacement of foreign workers with Saudi nationals in the private sector—the Saudi labor law sets the expected retirement age at 60. Employment beyond 59 is a mutually agreed upon decision between employers and employees. Regionally, employers overtly discriminate against candidates older than 55 since no legal protections exist and government retirement programs for nationals are relatively robust. In addition, employers legitimately cite difficulty acquiring a work visa or the specter of possible health problems with older talent.

Governmental Solutions for National Recruitment

The Saudi government uses a three-pronged strategy for recruitment of nationals: quotas, government-sponsored training and a work visa system that impedes the employment of non-Saudis.

The Nitaqat is a tiered quota system that punishes companies that fail to meet Saudization quotas with progressive immigration restrictions. This program has been very successful increasing employment of Saudis since implementation. Government officials continue to manipulate the program and raise quotas. Businesses have pushed back at the newly announced overly aggressive quotas for 2016.

The Human Resource Development Fund (HRDF) is a generous incentive program for employers to train Saudis for work. Effectively, the HRDF plays the middleman and project manager for vocational training for employers. Employers are encouraged to enroll Saudis in various vocational training programs reimbursed by the HRDF. Saudis enrolled receive a salary while they are in training and the HRDF reimburses the employer up to 50 percent. Saudis in these programs count toward Saudization quotas. It is a lavish program that requires extensive employer recordkeeping.

The Saudi work visa system has the reputation as one of the most lengthy, occasionally unpredictable, and frustrating visa systems in the world. It is procedurally convoluted, rigid and sluggish with the beneficial outcome of discouraging immigration of workers. The visa system preoccupies a large portion of HR management’s time. The system requires extensive manpower planning needs since visas are granted in large blocks that must be consumed before requesting another block. Visas are requested according to nationality and occupation with strict attention paid to educational qualifications. Candidates that do not exactly match these credentials are nearly always rejected. Such an inflexible visa system forces employers to hire from an artificially narrow labor pool of nationalities to fill quick replacements.

HR Concerns

Due to extremely high demand for accomplished and qualified Saudi skilled talent, salaries have abruptly soared for blue-chip quality candidates. Even marginally qualified Saudi supervisor and manager salaries are climbing fast due to high demand. Unfortunately, only a few successful companies have adequate training resources required to prepare Saudi first-line management for the demands of leadership of an extremely diverse workforce (often with more than 15 different nationalities).

The same job can be extremely variable in compensation. Salaries are commonly priced according to home-country markets. Employees from low wage areas like the Philippines are routinely paid less than Arabs doing the same job. Sharing information between companies at the middle-management level is an unusual practice and often viewed with suspicion. Knowledge of market prevailing wage practices comes from the ability to recruit.

Excluding multinational firms, government agencies, and major employers such as ARAMCO, SABIC, or Ma’aden, the use of salary grades and rate ranges for jobs is conceptually new and problematic.

Recently, a tidal wave of inexperienced university graduates has pushed their way into the economy. Employers frequently complain that university graduates with just a few years of work experience often have unreasonable expectations of compensation and job responsibilities.Recruiting young Saudi women further compounds recruitment complexity due to architectural and work procedural requirements of gender segregation. Unfortunately, Saudi women’s universities only offer a narrow band of degree majors deemed gender appropriate by authorities.This effectively excludes women from engineering and scientific careers.

Labor laws severely restrict management’s ability to control and discipline the workforce.Western managers experience considerable frustration due to the cultural norms of employee protections in the labor law. As an extreme example, if an employee was caught sleeping on duty they would have to be caught more than four times within one year to be terminated.

Nearly all employees have employment contracts that detail various aspects of employment for a fixed but usually renewable term. After three cycles of contract renewals, employees typically revert to an unspecified duration contract.

Layoffs are legally difficult and expensive since they require payout of the employment contract.Despite the overt stipulations in the law, pragmatically, this is estimated at three months’ pay or a maximum of 100,000 Saudi riyals. Terminating poorly performing employees requires following strictly defined disciplinary protocol with detailed documentation.

Overall, Saudi Arabia is a robust employment market with vast resources that remains unaffected by the sharp drop in oil prices. Political stability and lucrative compensation packages continue to attract adventurous talent willing to tolerate cultural hardships. Worldwide talent continues to be relatively liquid; however Saudization remains an unpredictable factor in strategic planning. Governmental pressures for massive increases in employment of Saudis continue to force local employers to rethink manpower plans. HR must continue to provide pragmatic solutions to the inherently conflicting goals of the government and the private employer.

Jeff Leeth is senior general manager and HR business partner at Abdul Latif Jameel, an automotive distribution, financing, advertising and media company, based in Jeddah, Saudi Arabia.

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