The Laws and Regulations Related to directors Remuneration (A comparative study between Saudi Arabia and UK)

Abstract

The aim of this paper is to analyse the regulations and laws surrounding the practice of remuneration. Further, the paper seeks to provide solutions to the challenges faced when setting structures and levels of remuneration in the Kingdom of Saudi Arabia (KSA), and make recommendations to facilitate this process which has so far been neglected. Remuneration is a vital means of resolving the issue in public organisations between managers and shareholders whereby incentives are used to separate control and ownership of the company. In the KSA, however, a significant amount of high fixed and variable remuneration packages are set without taking performance into account, meaning that variable remuneration often simply becomes a second salary for individuals. In many ways, Saudi laws and regulations do not go far enough to avoid this problem, therefore careful examination of the associated jurisdictions is necessary in order to identify potential solutions. This paper, therefore, utilises an analytical and descriptive framework to examine and compare these regulations and laws and discusses regulation of remuneration practices in the United Kingdom (UK). In November 2015, a new Companies Law was introduced in the KSA and the regulation of senior managers’ remuneration, benefits and bonuses was changed significantly – including, most importantly, a cap on the amount of money directors can receive per year. According to Article 76 of the new Companies Law, a senior manager’s annual salary, bonus, and benefits cannot total more than GBP 90,000. Prior to this new regulation, Saudi bosses were not restricted in terms of remuneration except if they were paid in dividends. In the UK, calls have been made for shareholders to be given more power within the companies that they are involved with; organisational scandals in recent years have highlighted the 4 problems faced by companies, especially with regard to how senior executives handle running their activities. While management has shown determination towards resolving this issue, further challenges have arisen around the compensation given to executives and directors. The main problem is that executives are always paid huge sums of money and other benefits even when their organisation is performing badly and stock prices plummeting.1 On some occasions, an executive’s remuneration can equal 300% or more of their salary, despite the company making losses. In the Saudi context, poorly performing companies has cost the country considerably, while the board of directors and other senior managers continue to be presented with massive benefits.2 This paper consists of three chapters. The first introductory chapter contains the abstract, methodology, and aims and objectives of the research. Chapter 1 presents a discussion on executive remuneration in the UK, with Chapter 2 moving on to the situation among executives in the KSA. The final chapter compares the laws and regulations around remuneration in the UK and KSA, with a final conclusion and recommendations for potential improvements to the laws in the KSA based on the findings of this paper.