Nominations and Remuneration Committee

Responsibilities, Compensation Policies, and Succession Plans

First: Introduction

The nominations and remuneration committee is one of the most influential committees in a company’s culture and long-term performance. Its decisions on who leads the company (nominations) and how those leaders are compensated (remuneration) shape the company’s identity for years to come. The right CEO with the right incentive structure can transform a struggling company into an industry leader. The wrong appointments or poorly designed compensation can destroy decades of value building.

In the Saudi system, this committee is mandatory in every listed company under the Corporate Governance Regulations. Some companies split it into two separate committees (nominations and remuneration), but most combine them. This article reviews the committee’s composition, responsibilities, compensation policy design, nomination processes, succession planning, and best practices.

💡  Key Insight The nominations and remuneration committee is the steward of human capital at the highest level. Its decisions don’t just affect individuals — they shape the company’s leadership pipeline, culture, and strategic direction. A well-functioning committee builds bench strength for the future; a poorly functioning one leaves the company vulnerable to leadership crises.

Second: Regulatory Framework

1. Saudi System Requirements

The Corporate Governance Regulations require:

• Mandatory Formation: In every listed company.
• Composition: 3-5 non-executive members.
• Independence: Majority must be independent.
• Chairmanship: Independent chair.
• Executive Members Prohibited: From membership.
• Annual Disclosure: Of activities and compensation.

2. Split vs. Combined Committee

Companies may choose between:

• Combined Committee: More common in Saudi Arabia, handles both areas.
• Two Separate Committees: In very large companies, for deeper focus.

Combined committee advantages:

• Integration of compensation and nominations decisions.
• Lower cost and effort.
• Suitable for most company sizes.

Separate committees advantages:

• Deeper specialization in each area.
• More time for each topic.
• Suitable for very large or complex companies.

Third: Committee Composition

1. Member Count

Typical composition: 3-5 members. The choice depends on:

• Company size and complexity.
• Number of senior executives requiring attention.
• Frequency of major nomination decisions.
• Workload (especially in compensation reviews).

2. Required Independence

• Majority of members must be independent.
• Chair must be independent.
• No executive members allowed.
• Non-executive non-independent members may serve as minority.

3. Required Competencies

3.1 Human Resources Expertise

At least one member should have:

• Senior HR leadership experience.
• Knowledge of compensation structures.
• Talent management and development experience.
• Performance management understanding.

3.2 Executive Compensation Expertise

• Understanding of compensation philosophy.
• Knowledge of market benchmarking.
• Familiarity with incentive plan design.
• Awareness of regulatory limits and trends.

3.3 Leadership Assessment Expertise

• Experience evaluating senior executives.
• Understanding of leadership competencies.
• Familiarity with succession planning frameworks.

3.4 Diversity

Committee composition should reflect commitment to diversity it advocates for the company.

Fourth: Committee Responsibilities — Nominations

1. Board Composition Strategy

The committee develops and maintains:

• Required board composition: Size, expertise mix, diversity.
• Skills Matrix: Current capabilities vs. needed capabilities.
• Gap Analysis: Identifying what’s missing.
• Future needs: Anticipating strategic direction.

2. Director Nominations

2.1 Identifying Candidates

• Broad candidate search.
• Using executive search firms.
• Tapping professional networks.
• Considering internal succession candidates.
• Encouraging diverse candidate pool.

2.2 Evaluating Candidates

• Background and reference checks.
• Independence assessment.
• Competency match with gaps.
• Time availability.
• Cultural fit.
• Conflict of interest screening.

2.3 Recommendations to Board

• Recommended candidates with rationale.
• Alternative candidates if relevant.
• Independence classification.
• Proposed committee assignments.

3. CEO Selection and Succession

3.1 CEO Search

• Leading CEO selection process.
• Defining required profile.
• Engaging executive search firms.
• Conducting interviews.
• Negotiating terms (subject to board approval).

3.2 CEO Succession Planning

• Continuous identification of potential successors.
• Development plans for internal candidates.
• Emergency succession plan (for sudden departure).
• Regular review with board.
• External candidate awareness.

4. Senior Executive Nominations

For other senior positions (CFO, COO, etc.):

• Reviewing CEO’s recommendations.
• Interviewing finalists.
• Approving appointments (in some companies, board approves).
• Succession planning for each position.

5. Board Performance Evaluation

• Designing evaluation methodology.
• Conducting or overseeing evaluation.
• Analyzing results.
• Recommending improvements.
• Linking results to renomination decisions.

6. Director Training and Development

• Onboarding programs for new directors.
• Continuous training programs.
• Identifying training needs from evaluation.
• Budget recommendations.

Fifth: Committee Responsibilities — Remuneration

1. Remuneration Philosophy

The committee develops the company’s compensation philosophy:

• Alignment with strategy.
• Attracting and retaining talent.
• Motivating performance.
• Long-term value orientation.
• Internal equity and fairness.

2. Board Member Compensation

• Proposing fixed compensation amounts.
• Proposing attendance allowances.
• Proposing chair and committee chair differentials.
• Reviewing benchmarking studies.
• Recommending to board for assembly approval.

3. CEO Compensation

3.1 Base Salary

• Benchmarking against peers.
• Considering performance and tenure.
• Annual review.

3.2 Annual Bonus

• Setting performance targets.
• Defining metrics (financial, operational, strategic).
• Reviewing year-end performance.
• Determining bonus amount.
• Discretion limits.

3.3 Long-Term Incentives

• Stock options or restricted shares.
• Performance shares.
• Long-term cash plans.
• Vesting schedules.
• Performance conditions.

3.4 Benefits and Perquisites

• Retirement benefits.
• Allowances (housing, transport).
• Other benefits.

3.5 Termination Arrangements

• Notice periods.
• Severance pay.
• Non-compete provisions.
• Clawback provisions.

4. Senior Executive Compensation

• Reviewing CEO recommendations for top 5-10 executives.
• Approving total compensation packages.
• Ensuring consistency with policy.
• Benchmarking against market.

5. Compensation Policy

Developing and maintaining the comprehensive compensation policy:

• Drafting policy document.
• Annual review.
• Recommending to board and assembly.
• Disclosure in annual report.
• Engaging external advisors for benchmarking.

6. Risk Considerations in Compensation

Ensuring compensation doesn’t encourage excessive risk-taking:

• Balance between fixed and variable.
• Long-term vs. short-term incentives.
• Clawback provisions for misconduct.
• Risk-adjusted performance metrics.
• Coordination with risk committee.

📌  Note Compensation decisions are increasingly scrutinized by investors, regulators, and the public. “Pay-for-performance” is the standard expectation, with clear linkage between executive compensation and company results. Compensation that appears excessive or disconnected from performance can trigger shareholder activism and reputation damage.

Sixth: Succession Planning

1. Importance of Succession Planning

Succession planning is among the most strategic responsibilities:

• Ensures business continuity in leadership transitions.
• Reduces dependence on individuals.
• Builds internal talent pipeline.
• Provides options for the board in critical decisions.
• Reduces reliance on costly external hiring.

2. Levels of Succession Planning

2.1 CEO Succession

• Highest priority for the committee.
• Multiple candidates identified.
• Active development for top candidates.
• Emergency succession plan ready.
• Reviewed at least annually with board.

2.2 Other C-Suite Succession

• CFO, COO, CHRO, etc.
• Internal candidates identified and developed.
• External candidate awareness.
• Regular review (semi-annually).

2.3 Critical Position Succession

• Identifying business-critical positions.
• Backup plans for key roles.
• Talent pipeline development.

3. Succession Planning Process

• Position Profile: Detailed requirements for each role.
• Candidate Identification: Internal and external.
• Readiness Assessment: Ready now, ready 1-2 years, ready 3-5 years.
• Development Plans: Targeted development for high-potential candidates.
• Regular Review: At least annual review with board.
• Emergency Plan: Detailed plan for sudden departures.

4. Common Challenges

• Difficulty assessing internal candidates objectively.
• CEO resistance to discussing their own succession.
• Confidentiality concerns with identified candidates.
• Balancing candidate development with current role demands.

Seventh: Performance Evaluation

1. CEO Performance Evaluation

The committee leads annual CEO evaluation:

• Setting clear performance expectations at year start.
• Mid-year check-in.
• Year-end formal evaluation.
• Multi-rater inputs (board, direct reports, key stakeholders).
• Linking results to compensation.
• Development plan for next year.

2. Board Evaluation

• Designing evaluation methodology.
• Conducting evaluation (self or external).
• Analyzing results.
• Recommending action plans.

3. Senior Executive Evaluation

Reviewing CEO’s evaluations of senior executives:

• Ensuring rigorous process.
• Calibration across functions.
• Consistency with compensation decisions.

Eighth: Diversity and Inclusion

1. Strategic Importance

Diversity is increasingly seen as both ethical and strategic:

• Better decision-making with diverse perspectives.
• Broader talent pool access.
• Reflecting customer and stakeholder diversity.
• Meeting investor and regulatory expectations.
• Vision 2030 commitment to women’s participation.

2. Committee’s Role

• Setting diversity goals.
• Monitoring diversity at board and senior levels.
• Ensuring diverse candidate slates.
• Identifying and addressing barriers.
• Reporting on progress.

3. Dimensions of Diversity

• Gender diversity.
• Age and generational diversity.
• Nationality and cultural diversity.
• Professional background diversity.
• Cognitive diversity.

Ninth: Relationship with Other Parties

1. With the Board

• Regular reports.
• Recommendations on major decisions.
• Coordination on succession matters.
• Input on board composition.

2. With the CEO

Delicate balance:

• Cooperation on senior executive matters.
• Independence on CEO matters (compensation, succession, evaluation).
• Closed sessions when discussing CEO.
• Regular communication.

3. With Other Committees

• Audit Committee: On compensation disclosure and clawback.
• Risk Committee: On risk in compensation.
• Governance Committee: On board composition and effectiveness.

4. With External Advisors

• Executive search firms for nominations.
• Compensation consultants for benchmarking.
• Legal advisors for contracts.
• Independence from management critical.

Tenth: Common Challenges

1. CEO Compensation Pressure

Pressures to inflate CEO compensation:

• Peer comparisons creating ratcheting.
• CEO expectations and negotiating power.
• Difficulty saying no.
• Optics of underpaying.

Treatment:

• Independent committee with strong chair.
• Independent compensation advisors.
• Clear policy and discipline.
• Pay-for-performance focus.

2. Succession Planning Reluctance

Difficulty getting serious about succession:

• Current CEO may resist.
• Identified candidates may leave if not promoted.
• Difficult conversations about replacement.

Treatment:

• Making it routine, not threatening.
• CEO involvement in development.
• Confidentiality maintained.
• Long-term framing.

3. Diversity Goals vs. Best Candidate

Balancing diversity goals with merit:

• Avoiding tokenism.
• Genuinely broadening candidate pool.
• Addressing structural barriers.
• Setting aspirational but realistic goals.

4. Talent Scarcity

Difficulty finding qualified candidates:

• Limited pool for specialized roles.
• Competition with peer companies.
• Geographic limitations.

Treatment:

• Internal development.
• Broader geographic search.
• Building external networks.
• Investing in pipeline.

Eleventh: Disclosure and Transparency

1. Annual Report

Committee report in annual report covers:

• Composition and meetings.
• Nominations decisions.
• Compensation policy summary.
• Total compensation paid.
• Performance vs. compensation linkage.
• Succession planning approach (high level).

2. Compensation Disclosure

Detailed disclosure includes:

• Board member compensation by component.
• Top 5 executives total compensation.
• Performance metrics for variable pay.
• Year-over-year comparison.
• Pay ratio (in some jurisdictions).

3. Sensitive Information

Some information remains confidential:

• Specific succession candidates.
• Individual performance details below CEO.
• Negotiation details.
• Future compensation plans not yet approved.

Twelfth: Best Practices

1. At Composition Level

• Strong independent chair.
• Diverse member backgrounds.
• HR and compensation expertise.
• Sufficient time commitment.

2. At Process Level

• Clear written policies.
• Regular benchmarking.
• Independent external advisors.
• Rigorous evaluation processes.
• Active succession planning.

3. At Cultural Level

• Pay-for-performance philosophy.
• Long-term orientation.
• Genuine commitment to diversity.
• Open dialogue with CEO.
• Constructive challenge.

4. At Disclosure Level

• Comprehensive annual report.
• Clear pay-performance linkage.
• Transparency beyond minimum requirements.
• Engagement with shareholders on compensation.

Conclusion

The nominations and remuneration committee shapes who leads the company and how they’re motivated — decisions that ripple through the company for years. A strong committee builds leadership depth, drives performance through aligned incentives, and ensures continuity through robust succession planning. A weak committee risks talent gaps, misaligned incentives, and leadership crises.

Saudi companies today, with growing competition for talent and increasing investor scrutiny, must invest seriously in this committee. Strong independent chairs, diverse competencies, robust processes, and transparent disclosure are the hallmarks of effective committees. The investment pays back in stronger leadership pipelines, better-aligned compensation, and stronger company performance over time.

🎯  Essential Points to Remember (1) Mandatory committee in every Saudi listed company. (2) Composition: 3-5 non-executive members, majority independent, independent chair. (3) Nominations responsibilities: board composition, director nominations, CEO succession, board evaluation. (4) Remuneration responsibilities: compensation philosophy, board pay, CEO pay, executive pay, policy. (5) Succession planning is a strategic responsibility — CEO, C-suite, critical positions. (6) Performance evaluation links to compensation decisions. (7) Diversity is both ethical and strategic — committee leads this. (8) Independence from CEO on CEO matters is critical — closed sessions essential. (9) External advisors (search firms, compensation consultants) crucial for benchmarking. (10) Disclosure is detailed in annual report covering composition, decisions, compensation, and policy.

Frequently Asked Questions

What are the mandatory composition requirements for the nominations and remuneration committee in Saudi Arabia?

The CMA Corporate Governance Regulations require every listed company to form a nominations and remuneration committee — or two separate committees for nominations and remuneration in very large or complex companies. Regardless of structure, the composition rules are consistent: three to five non-executive members, a majority must be independent, the chair must be independent, and executive members are prohibited. Required competencies span four dimensions. At least one member should have senior HR leadership experience and knowledge of compensation structures and talent management. At least one should understand compensation philosophy, market benchmarking methodology, and incentive plan design alongside awareness of regulatory limits. Members should collectively possess leadership assessment experience including familiarity with succession planning frameworks. The committee's own composition should reflect the diversity it advocates for the company. The choice between a combined or separate committee structure depends on company size, the frequency of major nomination decisions, and the depth of compensation complexity — most Saudi companies use the combined structure as it integrates compensation and nominations decisions and is suitable for most company sizes, while very large companies may benefit from the deeper specialization of separate committees.

What are the nominations and remuneration committee's main responsibilities and how does it manage CEO succession planning?

The committee's responsibilities divide into two interconnected domains. On nominations, the committee develops and maintains board composition strategy through a skills matrix identifying current and needed capabilities, conducts broad candidate searches using executive search firms and professional networks, evaluates candidates through background checks, independence assessments, competency matching, and conflict of interest screening, and recommends nominations to the board with rationale. It also leads CEO selection and succession, reviews senior executive nominations proposed by the CEO, leads board performance evaluation, and oversees director training and development. On remuneration, the committee develops the compensation philosophy aligning pay with strategy and long-term value creation, proposes board member compensation for assembly approval, sets CEO performance targets and determines annual bonus amounts, oversees long-term incentive plans, reviews senior executive compensation packages, develops the annual compensation policy document, and ensures compensation structures do not encourage excessive risk-taking through coordination with the risk committee. CEO succession planning receives the highest priority — the committee continuously identifies multiple potential successors, maintains active development plans for top internal candidates, keeps an emergency succession plan ready for sudden departures, and reviews the plan at least annually with the full board. Confidentiality is maintained while ensuring the board always has informed options for critical leadership decisions.

How should the committee handle CEO compensation and what disclosure is required in the annual report?

CEO compensation requires the committee to operate with complete independence from the CEO — all discussions about the CEO's compensation, evaluation, and succession must be conducted in closed sessions without the CEO present, with the committee chair engaging the CEO directly only to communicate final decisions. The committee sets performance targets at the year's start across financial, operational, and strategic metrics, conducts a mid-year check-in, then conducts a formal year-end evaluation with multi-rater inputs before determining the bonus and long-term incentive outcomes. External independent compensation consultants must be engaged for benchmarking against peers — using advisors who also work for management creates a conflict of interest. The committee must guard against peer comparison ratcheting where benchmarking against competitors creates continuous upward pressure on pay regardless of performance. Clawback provisions for misconduct and risk-adjusted performance metrics help prevent compensation from encouraging excessive risk-taking. Annual report disclosure covers committee composition and meetings, nomination decisions made during the year, compensation policy summary, total compensation paid to board members by component, top five executive total compensation, the performance metrics used for variable pay and outcomes versus targets, year-over-year comparison, and at a high level the succession planning approach — while specific succession candidates, individual performance details below CEO level, and unapproved future plans remain confidential.

References and Sources

• Corporate Governance Regulations issued by the Capital Market Authority.
• Saudi Companies Law (Royal Decree M/132).
• Implementing Regulations of the Companies Law for Listed Joint-Stock Companies.
• OECD Principles of Corporate Governance — Remuneration and Nominations.
• ICGN Global Governance Principles — Director Nomination and Remuneration.
• UK Corporate Governance Code — Nominations and Remuneration Committees.
• Spencer Stuart Board Index — Nomination and Compensation Practices.
• Harvard Business Review — CEO Succession Planning.
• Hay Group / Korn Ferry — Executive Compensation Trends.
• NACD — Compensation Committee Best Practices.