By REBECCA TORR

PRIVATE sector salaries in Bahrain have risen by an average of 10.5 per cent in the last year, a study has revealed. Workers in the construction and banking sectors enjoyed the highest wage increases, reports the Middle East online recruitment firm GulfTalent.com.

Compared to the majority of its neighbours in the Gulf, Bahrain’s average salary increase was marginally higher than the 9pc inflation rate forecast for the country this year.

The fourth annual survey of salary trends in the region, entitled Gulf Compensation Trends 2008, was released yesterday. It revealed increases in basic salary in each country over the 12-month period to August.

On average, Gulf salaries increased by 11.4pc in 2008 compared to 9pc last year.

The UAE and Qatar topped the list of pay rises with increases of 13.6pc and 12.7pc respectively. This was followed by Oman at 12.1pc. Bahrain came fourth at 10.5pc. Kuwait and Saudi Arabia once again came at the bottom, with average rises of 10.1pc and 9.8pc respectively, although this was high by historical standards.

All six markets saw pay increases accelerate relative to last year. However, except for Bahrain, the majority of countries are still below the forecast rates of inflation this year, suggesting diminishing net disposable incomes, as pay rises fail to keep up with rising costs of living.

Across the region, the frantic pace of growth in the construction and energy sectors escalated demand for engineers, who received the biggest average pay rises. This was followed by finance professionals in second place, largely due to the rapid expansion in the banking sector.

According to the study, pay rises were driven by a continued shortage of talent across most sectors as well as the spiralling cost of living, particularly in residential rents.

Following global trends, food prices have also soared this year, helping bring double-digit inflation to virtually all the Gulf countries.

Other contributing factors highlighted in the report include large pay hikes awarded to government employees as well as rising salaries in India, the Gulf’s main source of expatriate professionals.

The weakness of the US currency until a few months ago is cited as another factor driving up wages for much of the year, with several companies introducing formal exchange rate protection in the compensation packages of their expatriates.

The pressure has subsided, however, following the sharp rise in the value of the US dollar within the last few months.

According to the report, the region’s ongoing war for talent is forcing employers to adjust, not only their salaries, but working practices.

A major new trend this year has seen a large number of companies with six-day working weeks, including many in construction and retail sectors, switch to five-day weeks in an effort to improve staff retention.

Another common trend is the emergence of pay disparities between new and existing employees.

Several employers surveyed by GulfTalent.com reported offering higher packages to new hires than those received by existing staff in similar roles, as firms struggle to attract talent in a tight market.

The disparities are causing significant tension among employees, sometimes leading to further problems, requiring yet more recruitment at higher pay, the report said.

Given the current economic gloom prevailing in the US and Europe, the report highlighted the possibility of a flood of Western-based professionals to the region, including those of Arab or Muslim origin, on a scale not seen since the post-9/11 influx.

GulfTalent.com’s study was based on a survey of 29,000 professionals in the GCC countries as well as interviews with regional business leaders and human resource managers.