Saudi regulator links board pay to performance as governance reforms advance

Saudi Arabia’s Capital Market Authority issued a circular on September 17 calling for clear criteria to link pay for company directors, committee members and executives to performance.

Companies are also expected to disclose the criteria and check that they are applied.

The move is part of broader efforts to strengthen governance, shareholder rights, transparency and accountability in Saudi Arabia’s financial market.

The authority has also developed rules for removing board members, giving shareholders more ability to monitor and hold boards accountable.

The commentary argues that strong governance starts with choosing qualified, experienced and independent directors, not only setting their pay.

Family ties or influence from a controlling shareholder do not automatically make a board member unsuitable, but they can be a problem if they outweigh competence or weaken independence.

The commentary recommends clearer skills requirements, objective checks for conflicts of interest and regular reviews of boards and their members.

It says nomination and remuneration committees should focus on finding the right mix of expertise, while the authority’s broader governance reforms continue.