7 Sep 2010
Giving employees a share of the business through stock options are an important incentive for staff and increases the resilience of a company during an economic downturn, according to a recent report by Cass Business School, in London. However, this staff incentive is not easily available in the UAE. While EOB’s have proven to be resilient during the downturn, the number of business in the Middle East offering this business model are much less common compared to the UK or US due to the local ownership regulations. In most cases, stock options for employees are simply absent.
“The set up in the UAE is not very conducive to employee-owned companies as our law here does not support stock options. It’s not easy to build mutli-levels of shares and it makes it difficult for people to use share holding as a form of incentive for employees,” Prashant Gulati, the secretary general of the Indian Business and Professionals Council in Dubai, told Gulf News.
An EOB is a business that is owned in whole or partly by its employees. Employees are often given a share of the business after working with the company for a certain period. If local companies choose to implement this option, an offshore structure will have to be created which can be complicated and expensive.
“Although it is possible to build an employee-owned business in the UAE, the sponsorship model, the majority expat population, the transient nature of the work force, and company law requirements create an environment in which employee-owned businesses are more challenging to build and run,” Dr Armen V Papazian, financial economist and CEO of Keipr, a consulting firm that specialises in business analytics and intelligence told Gulf News.
The UAE business landscape is dominated by government owned corporations and family conglomerates which are not the typical candidates to introduce employee-ownership. Medium enterprises, which tend to be located either in free zones or as domestic companies set up in partnership with nationals have owners as employees for visa sponsorship purposes but the vast majority of them are not typical employee-owned businesses, Papazian says.
However, international companies such as Mott MacDonald a management, engineering and development consultancy that have extended their EOB model to the Middle East, say they are experiencing success.
“The EOB model has aided our growth in this market, as expansion is financed through the company funds with a confirmed policy of growth decision making. The model also provided us with more resilience during the economic downturn. We have been able to support our clients through difficult times, with a view to long term business relationships,” said Paul Looker, from Mott MacDonald. “In the Middle East at present many of our publicly owned competitors have been under stress with their stock market positions, so being structured as an employee-owned business has been a major benefit for us.”
“Resilience … has been neglected as a crucial aspect of company performance over the past two decades. Instead, business strategy and public policy have been dominated by an unremitting focus on maximising share value.” said Joseph Lampel, professor of strategy and entrepreneurship at the Cass Business School, London.
This article originally appeared on Gulf News