Board Member Remuneration and Allowances
Policies, Disclosure, Balance, and Best Practices
First: Introduction
Board member remuneration is among the most sensitive governance topics, generating considerable public discussion. These compensations are not merely payment for time and effort but a strategic tool for attracting talent, motivating performance, and guiding behavior. Compensation too low may drive away competence, while compensation too high may anger shareholders and impugn member independence. Balance in designing compensation policy is a real challenge facing every board.
In the Saudi system, board member compensation is regulated by a precise legislative framework: the Companies Law sets general principles, the implementing regulations detail maximum limits, the Corporate Governance Regulations regulate transparency and disclosure, and the remuneration committee handles drafting and implementation. This framework, despite its strength, needs thoughtful application at each company level. This article reviews compensation components, policies, regulatory framework, disclosure, and best practices.
| 💡 Key Insight Board member compensation is not wages but compensation. It reflects the value of governance service, not the value of consumed time. Treating it as ordinary wages harms the board’s image before shareholders, and excess in it may compromise independence. The rule: compensation sufficient to attract competence, moderate so as not to question integrity, transparent so as not to raise suspicion. |
Second: Regulatory Framework
1. Saudi Companies Law
The Saudi Companies Law (Royal Decree M/132) regulates general principles of board member compensation:
- Determining Authority: Ordinary general assembly, based on board recommendation.
- Reference: Company articles of association may set limits.
- Maximum Annual Cap: SAR 500,000 per member, per implementing regulations (subject to review).
- Attendance Allowances: Additional and set per meeting.
- Profit-Linked: May be percentage of profits up to 10% maximum.
2. Corporate Governance Regulations
The regulations add detailed requirements for listed companies:
- Approved Remuneration Policy: A document approved by the general assembly.
- Nominations and Remuneration Committee: Oversees policy.
- Comprehensive Disclosure: In annual report on all compensation.
- Separation Between Member Compensation and Executive Compensation: For executive members.
- Strategy Alignment: Compensation serves strategy, not contradicts it.
3. Implementing Regulations of Companies Law for Listed Joint-Stock Companies
Implementing regulations specify precise details:
- Maximum Annual Compensation: SAR 500,000 per member.
- Maximum Total Compensation: 10% of net profits after distributions.
- Attendance Allowances: Set per board or committee meeting.
- Limits in Small Companies: May be lower.
Third: Compensation Components
1. Fixed Annual Compensation
The amount the member receives annually for their membership. This compensation:
- Granted to each elected member regardless of attendance.
- Paid usually in installments (quarterly or semi-annually).
- Varies by role (member, committee chair, chairman).
- Subject to taxes and social contributions as applicable.
2. Attendance Allowances
Amount paid for each meeting the member attends. Types:
- Board Meeting Attendance Allowance: Usually SAR 3,000-10,000 per meeting.
- Committee Meeting Attendance Allowance: May be less than board meeting.
- Special Meetings Allowance: For strategic or emergency meetings.
- Remote Attendance Allowance: Usually same value as physical attendance.
3. Additional Allowances
3.1 Chairman Allowance
The chairman usually receives additional compensation reflecting greater responsibilities:
- Double or triple ordinary member compensation.
- May have office and secretariat at company.
- May receive representation allowance.
3.2 Committee Chair Allowance
Each committee chair (audit, nominations, risk, etc.) receives additional allowance:
- 10-30% more than ordinary committee member.
- Reflects responsibility for setting agenda and oversight.
3.3 Committee Membership Allowance
Some companies grant separate allowance for membership on each committee:
- Fixed annual allowance.
- Or attendance allowance for each committee meeting.
4. In-Kind Allowances
- Travel Allowance: For members from outside the city to attend meetings.
- Accommodation Allowance: For foreign members or those from outside the city.
- Health Insurance: In some companies.
- Professional Insurance (D&O): To protect from legal liability.
- Administrative Services: Documents, transport, reception.
5. Variable Compensation (Controversial)
Variable compensation tied to performance — such as stock options or annual bonuses linked to profits — is a global discussion topic:
- Supporters: Aligns members’ interests with shareholders’.
- Opponents: Compromises member independence, especially independent.
- Saudi Practice: Rare for independent members, common for executive.
- International Practice: Varied, with trend toward reduction for independent.
| Compensation Type | Beneficiary | Suggested Range | Considerations |
| Fixed annual compensation | Each member | SAR 200-500K | Reflects regulatory maximum |
| Board attendance allowance | Attendee | SAR 3-10K per meeting | Attendance incentive |
| Committee attendance allowance | Attendee | SAR 2-5K per meeting | Less than board |
| Chairman allowance | Chairman | Double member | Reflects responsibility |
| Committee chair allowance | Chair | 10-30% addition | For responsibility |
| Travel and accommodation | Non-local | Actual cost | Reimbursement |
| D&O Insurance | Each member | Per coverage | Legal necessity |
Fourth: Distinction Among Members
1. Independent vs. Non-Independent Members
In Saudi and international practice, there is no major distinction in compensation between independent and non-independent members, except:
- Executive Members May Not Receive Membership Compensation: If receiving salaries from the company.
- Executive Members Receive Their Salaries: As executive salaries, not as member compensation.
- Non-Executive and Independent Members Receive Same Compensation: By same criteria.
2. Distinction by Responsibilities
Acceptable distinction reflects greater responsibilities:
- Chairman vs. Member: Justified distinction.
- Committee Chair vs. Committee Member: Justified distinction.
- Audit Committee vs. Other Committees: Sometimes, due to greater responsibility.
- Vice Chairman: Limited additional allowance.
3. Distinction by Experience
Distinction by individual member experience is a controversial practice:
- Supporters: Justified by value of added experience.
- Opponents: Creates unhealthy competition and is difficult to measure.
- Most Common Practice: Equal compensation for all members (with distinction for responsibilities).
| 📌 Note Equality among members in basic compensation, with justified distinction for additional responsibilities (chairmanship, committees), is the most common practice and least likely to cause problems. This approach reflects that all members contribute equally to decisions and avoids disputes over “who is more valuable.” |
Fifth: Remuneration Policy
1. Policy Components
The board member remuneration policy is a formal document including:
- Objectives: What the policy seeks to achieve.
- Guiding Principles: Fairness, transparency, competitiveness.
- Components: Different types of compensation.
- Criteria: How compensation is determined.
- Maximum Limits: Per regulations.
- Procedures: How proposed and approved.
- Review: When and how reviewed.
- Disclosure: What is disclosed and how.
2. Principles of Good Policy
2.1 Competitiveness
Compensation must be sufficient to attract and retain competence. This requires:
- Comparison with local market.
- Comparison with sector.
- Comparison with similar-sized companies.
- Consideration of international trends.
2.2 Objectivity
Compensation must be determined by objective criteria, not discretionary:
- Clear equations or tables.
- Linkage to responsibility magnitude.
- Avoiding personal biases.
- Same criteria for all members.
2.3 Transparency
Everything related to compensation must be transparent:
- Announced policy.
- Defined criteria.
- Comprehensive annual disclosure.
- Clarifying differences among members.
2.4 Sustainability
Compensation must align with company’s financial position:
- Not exceeding company capacity.
- Not exceeding legal ratios of profits.
- Reducing in cases of weak performance.
2.5 Independence
Compensation must not compromise member independence:
- Not exceeding what makes member financially dependent on company.
- Not including components that may bias opinion.
- Not differing substantially based on decisions taken.
3. Policy Review
- Frequency: Annual for general review, every 3-5 years for substantive update.
- Exceptional Review: On major regulatory, investment, or company position changes.
- Responsible: Nominations and remuneration committee.
- Approval: General assembly.
Sixth: Nominations and Remuneration Committee
1. Committee Role
The nominations and remuneration committee is responsible for managing the compensation system:
- Policy Drafting: And presenting to board then assembly.
- Proposing Compensation: For each member per policy.
- Proposing Senior Executive Compensation: In many companies.
- Periodic Review: Of policy and practices.
- Ensuring Compliance: With regulations and limits.
- Overseeing Disclosure: In annual reports.
2. Committee Composition
- Independent Majority: Ensuring objectivity.
- Independent Chair:
- CEO Does Not Attend: When discussing their compensation.
- Member Independence: In determining each other’s compensation.
3. Engaging External Experts
In many cases, the nominations and remuneration committee engages external experts:
- Specialized Consulting Firms: For benchmarking.
- Legal Experts: For compliance.
- Tax Experts: For financial structures.
- Governance Experts: For best practices.
Seventh: Compensation Approval Process
1. Committee Proposal
The nominations and remuneration committee proposes:
- Compensation amounts for each member.
- Changes to current policy.
- Justifications for any substantial increase.
- Comparison with previous years and market.
2. Board Review
Board reviews committee proposal with considerations:
- Consistency with approved policy.
- Consistency with company financial position.
- Avoiding conflicts of interest in discussion.
- Approving proposal for assembly submission.
3. Assembly Approval
General assembly is final authority:
- Voting on total compensation.
- Voting on compensation policy (in case of change).
- Complete disclosure of previous year compensation.
- Shareholder questioning of board on compensation.
4. Shareholder Vote
In some international systems, shareholders have right to “Say on Pay”:
- Annual binding or advisory vote.
- On compensation policy.
- On compensation amounts.
- In Saudi system, compensation approval mandatory from assembly.
Eighth: Compensation Disclosure
1. Mandatory Disclosures
The Corporate Governance Regulations require disclosure in annual report of:
- Total Compensation for All Members: Sum of amounts paid.
- Detail by Compensation Types: Fixed, allowances, in-kind.
- Detail for Senior Members: Each member separately in some cases.
- Senior Executive Compensation: Top 5 executives.
- Comparison with Previous Years:
- Compensation Policy: Summary and any changes.
2. Disclosure Template
The annual report contains a detailed table including:
| Item | Executive Members | Non-Executive Members | Independent Members |
| Fixed compensation | SAR X | SAR Y | SAR Z |
| Board attendance allowances | SAR X | SAR Y | SAR Z |
| Committee allowances | SAR X | SAR Y | SAR Z |
| Other allowances | SAR X | SAR Y | SAR Z |
| Total | Total | Total | Total |
3. Transparency Levels
Companies vary in detail level:
- Minimum: Total only (not recommended).
- Middle Level: Detail by categories.
- Distinguished Level: Detail for each member.
4. Confidential Information
- Special Compensation Structures: May not be disclosed in detail.
- Personal Information: Bank accounts, personal data.
- Reference Figures: In rare cases.
| ⚠️ Caution In an era of increasing transparency, hiding compensation information creates greater suspicion than disclosing it. Shareholders and investors appreciate transparency even when it reveals large compensation, provided it is justified. Hiding, even if legal, harms board and company reputation long-term. |
Ninth: Benchmarking
1. Importance of Comparison
Benchmarking is necessary for:
- Ensuring Competitiveness: Attracting talent.
- Avoiding Excess: Upsetting shareholders.
- Consistency: With market and sector.
- Justified Disclosure: To shareholders.
2. Comparison Sources
- Annual Reports: Of listed companies.
- Specialized Studies: PwC, Deloitte, KPMG.
- Consulting Firms: Hay Group, Mercer, Korn Ferry.
- Professional Bodies: Periodic reports.
- Engaging Experts: For custom reports.
3. Comparison Variables
- Sector: Banks, industry, services, etc.
- Company Size: Revenues, assets, capital.
- Complexity: Local, regional, international activity.
- Performance: Sometimes performance-linked.
Tenth: Modern Trends and Practices
1. Trend Toward Simplification
Modern practices trend toward simpler compensation structures:
- Single comprehensive annual fee.
- Reducing scattered allowances.
- Greater transparency.
- Ease of understanding.
2. Trend Toward Performance-Linked Compensation
In some markets, there is a trend to link part of compensation to company performance:
- Percentage of profits.
- Percentage of market value growth.
- ESG criteria.
- Controversial, especially for independent members.
3. Trend Toward Shares
Granting members company shares:
- Aligns their interests with shareholders.
- Rare for independent members in Saudi Arabia.
- More common in United States.
- Raises independence issues.
4. Trend Toward Maximum Limits
Some markets impose strict maximum limits:
- Absolute limits (Saudi Arabia: SAR 500K).
- Relative limits (percentage of revenues).
- Binding shareholder vote.
- Pressure from institutional investors.
Eleventh: Common Challenges
1. Challenge of Attracting Talent
Some small companies find difficulty attracting talent at available compensation. Solutions:
- Focusing on promising companies.
- Offering learning and development opportunities.
- Attracting senior retirees.
- Attracting members with non-financial motivations.
2. Challenge of Maintaining Independence
Very high compensation may compromise member independence. Balance:
- Not exceeding defined percentage of member’s total income.
- Avoiding large variable compensation.
- Avoiding granting shares in large quantities.
- Ensuring diversity of member income sources.
3. Challenge of Member Equality
Treating members equally may not reflect differences in added value. Solution:
- Adherence to equality in basics.
- Distinction for clear responsibilities (chairmanship).
- Avoiding distinction based on discretionary “added value.”
4. Disclosure vs. Privacy Challenge
Balance between transparency and protecting member privacy:
- Disclosure by categories not individuals in small companies.
- Disclosure by individuals for senior members in large companies.
- Respect for other personal information.
Twelfth: Best Practices
1. At the Policy Level
- Documented and Approved Policy: From assembly.
- Periodic Review: At least annual.
- Expert Consultation: On technical matters.
- Regular Benchmarking: To maintain competitiveness.
- Clear Principles: Competitiveness, objectivity, transparency, sustainability, independence.
2. At the Determination Level
- Independent Committee: Leads the process.
- Defined Criteria: Not discretionary.
- Documenting Justifications: For each decision.
- Respecting Regulatory Limits: And legal.
3. At the Disclosure Level
- Complete Transparency: Within regulations.
- Detail by Categories: As minimum.
- Annual Comparison: For trends.
- Clarifying Justifications: For changes.
- Ease of Understanding: For ordinary reader.
4. At the Communication Level
- Explanation to Shareholders: At assembly.
- Response to Inquiries:
- Listening to Comments: From investors.
- Adjustment When Necessary: Based on feedback.
Conclusion
Board member compensation is a sensitive topic requiring delicate balance among numerous variables: competitiveness for attracting talent, objectivity to avoid controversy, sustainability to match company position, independence to preserve decision integrity, and transparency to build shareholder confidence. This balance is not achieved automatically but through an integrated system of policies, committees, and procedures.
The Saudi system provides a good framework for managing this topic, combining clear maximum limits with mandatory transparency. Leading Saudi companies exceed the regulatory minimum and build advanced compensation policies aligned with international best practices. This investment in developing the compensation system is not luxury but necessity for any company aspiring to attract the best talent, maintain shareholder confidence, and build governance at international level. Balance in compensation is ultimately a reflection of balance in governance as a whole.
| 🎯 Essential Points to Remember (1) Board member compensation is compensation for governance service, not work wage. (2) Saudi system sets maximum at SAR 500K per member, under specific conditions. (3) Compensation components: fixed annual, attendance allowances, responsibility allowances, in-kind allowances. (4) Acceptable distinction reflects responsibilities (chairmanship, committees), not personal discretion. (5) Compensation policy is a document approved by assembly, governs all practices. (6) Principles: competitiveness, objectivity, transparency, sustainability, independence. (7) Nominations and remuneration committee leads the system with independent majority. (8) Mandatory disclosure of compensation in annual report with sufficient detail. (9) Benchmarking necessary to maintain competitiveness and reasonableness. (10) Modern trends: simplification, transparency, limits, caution toward performance-linked compensation for independents. |
Frequently Asked Questions
What is the regulatory framework for board member remuneration in Saudi listed companies and what are the limits?
Three regulatory sources govern board member remuneration in Saudi Arabia. Companies Law M/132 establishes that the ordinary general assembly is the final authority for approving compensation based on the board's recommendation, sets a maximum annual cap of SAR 500,000 per member under the implementing regulations subject to review, and allows profit-linked compensation up to a maximum of 10% of net profits after distributions. The Corporate Governance Regulations add requirements specific to listed companies including a written remuneration policy approved by the general assembly, oversight by the nominations and remuneration committee, mandatory comprehensive disclosure in the annual report, separation between non-executive member compensation and executive member salaries for those who hold both roles, and alignment with company strategy. The implementing regulations provide precise details on attendance allowances per meeting, minimum thresholds for smaller companies, and the overall ceiling of 10% of net profits after distributions as a cap on total compensation across all members. The general assembly must vote on compensation annually, and shareholders have the right to question the board on remuneration at the assembly — making transparency not only a regulatory requirement but a practical governance necessity.
What are the components of board member remuneration and how is distinction among members justified?
Compensation is structured across five categories. Fixed annual compensation between SAR 200,000 and 500,000 is granted to each elected member regardless of attendance, paid in quarterly or semi-annual installments, and varies by role. Board attendance allowances typically range from SAR 3,000 to 10,000 per meeting with committee meeting allowances set slightly lower. Additional responsibility allowances include a chairman allowance of double or triple the ordinary member's compensation reflecting significantly greater time commitment and responsibilities, and a committee chair allowance of 10 to 30% above ordinary committee membership. In-kind allowances cover actual travel and accommodation costs for members from outside the city, health insurance in some companies, and Directors and Officers Liability Insurance as a legal protection necessity. Variable compensation tied to performance is rare for independent members in Saudi Arabia due to independence concerns and more common for executive members. On distinction among members, the accepted practice is equality in basic compensation with justified additions for clearly defined additional responsibilities such as the chairmanship and committee chairs, while avoiding distinction based on subjective assessments of individual added value which creates unhealthy competition and disputes over measurement.
What must Saudi companies disclose about board remuneration and what role does the nominations committee play?
The CMA Corporate Governance Regulations mandate disclosure in the annual report of the total compensation paid to all members with a breakdown by compensation type covering fixed amounts, attendance allowances, and in-kind allowances, compensation for the top five senior executives, a comparison with previous years showing trends, and a summary of the remuneration policy and any changes made. Distinguished companies go further by disclosing each individual member's compensation separately rather than only category totals. The nominations and remuneration committee drives the entire compensation system through four core functions: drafting the remuneration policy and presenting it to the board then the general assembly for approval, proposing specific compensation amounts for each member with documented justifications, conducting regular benchmarking against sector peers and similar-sized companies using specialized consulting firms such as Hay Group, Mercer, or Korn Ferry, and overseeing compliance with regulatory limits. The committee must have an independent majority and an independent chair, and the CEO must not attend sessions where their own compensation is discussed. In an era of increasing governance scrutiny, hiding compensation information creates greater suspicion than transparent disclosure — shareholders and institutional investors value transparency even when it reveals substantial compensation, provided it is clearly justified and benchmarked against the market.
References and Sources
- Saudi Companies Law (Royal Decree M/132).
- Implementing Regulations of the Companies Law for Listed Joint-Stock Companies.
- Corporate Governance Regulations issued by the Capital Market Authority.
- UK Corporate Governance Code — Remuneration.
- OECD Principles — Director Remuneration.
- ICGN Global Governance Principles — Remuneration.
- PwC Annual Director Compensation Survey.
- Hay Group / Korn Ferry Remuneration Benchmarks.
- Spencer Stuart Board Index — Compensation Trends.
- Harvard Law School Forum on Corporate Governance — Pay Practices.
