Non-Executive Directors (NEDs) play a critical role in corporate governance, providing strategic oversight, risk management, and independent judgment to organizations. As corporate landscapes in the GCC (Gulf Cooperation Council) continue to mature, so does the conversation around fair and competitive NEDs remuneration. While global trends influence board compensation, GCC companies face unique challenges in balancing governance, transparency, and competitiveness in their remuneration frameworks.
The State of NEDs Compensation in the GCC
Recent studies from leading consulting firms such as Comp & Ben Middle East, PwC, Mercer, and Korn Ferry indicate that NEDs’ remuneration in the GCC has evolved significantly in the last decade. Historically, NEDs were compensated modestly, with fixed retainers and meeting fees being the predominant components. However, as regulatory bodies like the Saudi Capital Market Authority (CMA) and the UAE Securities and Commodities Authority (SCA) enforce stricter governance frameworks, there has been a notable shift towards performance-based compensation models.
Key Compensation Trends
- Fixed Retainer vs. Variable Pay:
Unlike executive pay, NEDs’ remuneration is traditionally structured around a fixed annual retainer with additional fees per meeting attended. However, some leading GCC firms are now introducing equity-based compensation, aligning NEDs’ interests with long-term shareholder value. - Sector-Specific Variances:
Financial services and energy sectors offer the highest NEDs remuneration, given the complexity and regulatory scrutiny in these industries. According to a 2023 KSA Board Remuneration Report by C&BME, financial institutions in Saudi Arabia 20-30% higher NED fees than firms in retail or manufacturing. - Linking Pay to Governance Complexity:
As ESG (Environmental, Social, and Governance) factors gain prominence, companies with more complex governance structures—such as family-owned businesses transitioning to public entities—tend to offer premium compensation for experienced independent directors.
Comparing GCC NEDs Pay with Global Benchmarks
While GCC NEDs remuneration is competitive within the region, it still lags behind mature markets such as the UK, US, and Europe.
- A 2022 McLagan study revealed that average NEDs remuneration in the GCC ranges between $50,000 and $120,000 annually, compared to $150,000-$250,000 in North America and Western Europe.
- The introduction of equity-based compensation remains limited in the GCC, whereas it is a common practice in markets like the US, where stock options and performance-linked bonuses are prevalent.
Regulatory Frameworks Shaping NEDs Compensation
Regulatory bodies across the GCC have imposed clear guidelines on NEDs remuneration to prevent excessive payouts and ensure alignment with governance best practices.
- Saudi Arabia:
- The CMA removed the limits board member remuneration to SAR 500,000 ($133,000) annually, excluding allowances and meeting fees.
- Emphasis on linking compensation to company performance and governance responsibilities.
- United Arab Emirates:
- The UAE Commercial Companies Law restricts board remuneration to 10% of net profits, ensuring directors are incentivized based on financial performance.
- The SCA encourages transparent disclosure of NEDs’ pay structures in annual reports.
- Kuwait, Bahrain, and Oman:
- While similar restrictions exist, there is increasing regulatory flexibility allowing publicly listed companies to define their own remuneration policies, subject to shareholder approval.
Balancing Competitiveness and Governance in NEDs Pay Design
Given the need to attract top-tier talent while maintaining regulatory compliance, GCC companies must adopt structured and data-driven approaches to designing NEDs compensation. The following strategies can help:
1. Benchmarking Against Regional and Global Data
Companies should conduct periodic market benchmarking to ensure NEDs’ remuneration remains competitive. For instance, a leading GCC conglomerate recently adjusted its board compensation strategy after a benchmarking study revealed a 25% pay gap compared to similar-sized companies in Europe.
2. Introducing Equity-Based Compensation
While regulatory constraints exist, offering restricted stock units (RSUs) or deferred share plans to NEDs can align their interests with long-term shareholder value.
3. Enhancing Transparency and Justification
Companies must disclose the rationale behind their board pay structures in financial reports, ensuring alignment with governance guidelines. A case study from a UAE-listed company showed that transparent disclosures led to increased investor confidence and a 12% rise in stock price following governance improvements.
4. Pay-for-Governance Approach
Some GCC firms are linking NEDs’ remuneration to governance KPIs, such as ESG implementation, audit committee effectiveness, and board performance assessments. This ensures NEDs remain actively engaged in strategic oversight beyond traditional fiduciary duties.
The Road Ahead for GCC NEDs Remuneration
As GCC markets mature, NEDs’ remuneration strategies will continue evolving. Companies must strike a balance between competitiveness and compliance, ensuring they attract top-tier directors while adhering to governance best practices. By leveraging data-driven insights, incorporating equity-based incentives, and enhancing transparency, organizations can future-proof their NEDs compensation frameworks.
The key question for corporate boards in the GCC is: Are we compensating our NEDs in a way that attracts the best talent while reinforcing strong governance? The answer to this will define the future of board effectiveness in the region.
