Board remuneration in Saudi Arabia: Life after the 500K cap

For many years, the pay of non-executive board members was constrained by a rigid statutory ceiling. This limited the total annual remuneration to SAR 500,000 per director (equivalent to approximately US$130,000). 

That cap, enshrined in the 2015 Companies Law, acted as both a safeguard and a constraint. It protected against excess but also restricted companies’ ability to attract directors with the skills and international experience needed for an increasingly complex corporate environment.

The 2022 Companies Law, which came into force in January 2023, replaced that rigid model with a flexible one. Article 76 of the new law now provides that board remuneration must be “fair, incentivizing, and commensurate with the performance of the [board] member and the company.” The amount and structure of that remuneration are determined by the company’s articles of association and a shareholder vote. There is no longer any numeric cap.

This change coincided with the Capital Market Authority’s 2023 amendments to the Corporate Governance Regulations and an Implementing Regulation for Listed Joint-Stock Companies (2024) – both of which include new requirements pertaining to board remuneration.

In the financial sector, the Saudi Central Bank (SAMA) has issued complementary guidance which states that director compensation must “align with the institution’s long-term financial goals, comply with prevailing local customs, and be in line with the institution’s financial risk policy.”

The new remuneration regime’s flexibility has been broadly welcomed by the Saudi business community. Yet it introduces practical challenges. Companies must now find the right balance between competitiveness and restraint. Compensation that is too low risks undermining the quality and diversity of the board, while pay that is too high risks reputational damage or shareholder resistance.

The regulatory shift also places more responsibility on board members themselves. Directors must ensure, through the work of their nomination and remuneration committees, that pay structures can be justified in terms of a range of potentially competing factors outlined in the various regulations. 

These range from the need to set pay that is “fair and proportionate” to a requirement to set pay at a level that is “reasonably sufficient to attract, motivate and retain highly qualified and experienced board members.” 

Directors also have the responsibility to ensure that pay policies and practices are appropriately disclosed, explained, and justified to external stakeholders.

Current market trends

To gain a clearer understanding of recent remuneration developments, the Center for Governance reviewed the 2024 annual reports and disclosures for Tadawul-listed companies. Our overall finding was that, since the cap’s removal in 2022, there has been an upward adjustment in board remuneration at large-cap companies in the banking, petrochemical, and telecoms sectors. However, at other listed companies, the adjustment has been more gradual. 

We found that the total remuneration paid to Main Market directors now exceeds the cap in around 25% of cases. However, the median board compensation is still well below it: SAR 367K. As might be expected, the compensation of board members at Nomu enterprises was on average less than half that in the Main Market. Only 4% of Nomu directors exceeded the previous SAR 500K cap.

Total board compensation typically broke down into five main components (although these were not present in every case): 

1. A fixed annual retainer. This formed the main component of total remuneration. 
2. Committee membership. Interestingly, we found that audit committee membership commanded a significant remuneration premium over membership of the NRC or risk committees.
3. Meeting fees. Many large companies are increasingly incorporating these into their fixed annual retainer. However, where separately identified, they were typically SAR 5-10K for each board meeting 
4. Variable compensation. This primarily arose from profit-sharing in banks, telecommunications, and petrochemical enterprises. However, KPI scorecards are rapidly gaining traction to justify variable pay.
5. In-kind and miscellaneous. This category included flights, hotels, medical expenses, D&O coverage, and mandatory training grants.

Future challenges

The regulatory framework governing board remuneration in Saudi Arabia is still relatively new. A degree of uncertainty persists about how boards should utilize their newfound freedom to determine director fees and other forms of compensation. Variable pay is a particularly grey area. 

The regulatory framework sends somewhat conflicting signals. For example, the Implementing Regulation of the Companies Law for Listed Joint Stock Companies, published by the CMA, states that “the remuneration of independent board members shall not be a percentage of the profits that are realized by the company, nor shall it be based directly or indirectly on the company’s profitability” (Article 9). This is consistent with the remuneration regulations for independent directors that are often seen in other jurisdictions (e.g., the UK).

On the other hand, Article 59 of the CMA’s Corporate Governance Regulations states that the remuneration policy should encourage board members to contribute to the company’s success by “making the variable part of the remuneration linked to the long-term performance.” 

There is hence some ambiguity about the role that variable compensation should play. Although a key feature of executive remuneration, should it be permitted for non-executive board members? And if so, are there performance metrics other than short-term profitability to which it should be tied? 

A further challenge is disclosure consistency. Despite regulatory mandates, levels of transparency vary across the Saudi Exchange. Some issuers provide comprehensive breakdowns of NED fees and committee allowances. Companies like Tadawul, SABIC, and Bupa Arabia all score highly in this respect. Others still report only aggregate figures. As investor sophistication grows, disclosure quality will likely become a differentiator of governance credibility.

Understandably, companies are increasingly turning to remuneration consultants to help them comply with the new framework and provide them with benchmarking data. Experience in other markets, however, has shown that this can inadvertently contribute to an upward ratcheting of pay. Consultants often benchmark remuneration against peer companies, but boards typically aim to position their board members at or above the median. As each company follows the same logic, market averages rise over time, creating a self-reinforcing escalation. 

However, for the time being at least, there appears to remain headroom for board pay increases in Saudi Arabia. The following table provides a rough comparison of board pay in major markets. The data should be treated with caution, as it derives from various sources that may not be entirely comparable. Also, the post-tax income received by a director will be affected by the local tax regime. Nonetheless, it suggests that median board pay in Saudi Arabia is still positioned slightly below that of European companies and well below North American levels.

Average total annual compensation of non-executive directors

A new phase for governance regulation in Saudi Arabia?

The end of the remuneration cap could potentially mark the beginning of a new phase in Saudi corporate governance. It may represent a shift from a “hard law” to a more “soft law” governance philosophy. Companies now enjoy the flexibility to reward board members appropriately for the extent and complexity of their duties, but they must also justify those rewards to their stakeholders and use their greater discretion responsibly.

The cap’s removal also signals a recognition that Saudi companies are now competing in a global talent market. Non-executive directors with international experience, industry specialization, or regulatory expertise are in high demand. The ability to set remuneration flexibly, within transparent and accountable processes, is essential for attracting and retaining such talent. Despite the challenges, this reform was a necessary step on the Saudi governance journey.

Dr. Roger Barker

Chief Research and Thought Leadership Officer, Center for Governance

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the opinion or position of the Center for Governance.