The Securities and Commodities Authority (SCA) wishes to clarify the following:Federal Law No. 2 of 2015 Concerning Commercial Companies is what determines the method of calculating the remuneration received by board members, not the regulations issued by the SCA. The Commercial Companies Law (CCL) capped maximum remuneration for board members at 10 percent of the net profit after deducting reserves and depreciation. Accordingly, the generation of net profits is a prerequisite for calculating and paying remuneration as Article 169 of the CCL states that: “The Articles of Association of a Company shall specify the method used to calculate the remuneration paid to Board members, provided that it does not exceed 10 percent of the net profit made for the fiscal year after deducting reserves and depreciation.” As such, under this article, which amends the one in the previous law, the payment of remuneration to board members is not restricted to whether or not dividends are paid out to shareholders for the fiscal year.
Also, the CCL granted the general meeting of shareholders—the owners of a company—the power to approve the payment of remuneration and its amount and the power to approve the distribution of dividends under Article 177, which states that: “The Annual General Meeting shall have the competence to consider and decide on the following matters:
• The directors’ report about the Company’s activities and financial standing during the fiscal year, the auditors’ report, and the internal Shari’ah board’s report if the Company is carrying out its activities according to Shari’ah law.
• The balance sheet and the loss and profit account.
• Electing Board members when necessary.
• Appointing members to the internal Shari’ah board if the Company is carrying out its activities according to Shari’ah law.
• Appointing auditors and determining their fees.
• Proposals by Board members for the distribution of cash or stock dividends.
• Proposals by the board for the remuneration for Board members.
• The release, dismiss, or file of liability claims against Board members, as the case may be.
• The release, dismiss, or file of liability claims against auditors, as the case may be”.
According to the provisions described above, the remuneration is decided by the company at its general meeting, not by its board of directors.
No attendance allowance is paid to the board chairman or members for attending board meetings as Article 29 of the Public Joint-Stock Company Governance Guide, prepared in response to The SCA Chairman’s Decision No. 3 of 2020, regulates the mechanism used for the payment of allowances and expenses, stating that: “The Company may pay expenses, fees, additional bonus, or monthly salary to any Board member, in a manner consistent with the policies proposed by the Nomination and Remuneration Committee, reviewed by the Board, and approved by the General Meeting if the Board member serves on any committee, makes special efforts, or performs additional tasks to serve the Company on top of his/her regular duties as Board member, and no Attendance Allowance shall be paid to the chairman or members of the Board for attending Board meetings”.
The operating profits are reflected on the income statement before deducting depreciation, amortization, administrative expenses, taxes, expenses not directly tied to the core business, and other revenues. Accordingly, the net loss or net profit that appears on the bottom of the income statement is the standard implemented to determine the profitability of the company when calculating the remuneration as per the requirements stipulated under the CCL.
Asset revaluation is carried out in line with the International Accounting Standards and the International Financial Reporting Standards so that revaluation differences are shown under shareholders’ equity on the balance sheet, not on the income statement. The financial statements are audited by external auditors to ensure that they meet the requirements of international standards and the regulating laws.
A company’s decision to distribute dividends to its shareholders is governed by the availability of sufficient liquidity, expansion plans, and the financial requirements and obligations to be met by the company during the year (which also affect the available liquidity).
We would also like to clarify a key point: the SCA’s departments closely monitor compliance with the requirements of the law before approving the disclosure of the minutes of the general meetings of listed companies.