Remuneration of Directors

In recent times, the Western corporate world has witnessed ‘shareholder spring’ spurred by growing investor concern that many companies’ executive and director pay and perquisites are excessively high and are not sufficiently justified by the performance of the companies. While investor reactions have ranged from non-existent to high-intensity depending on the company, the overall growing trend of examining executive pay more closely has brought the issue of executives’ and directors’ remuneration to centre stage.  In that spirit, this article examines the rules around such remuneration in Oman.

The remuneration package of executive and non-executive directors may comprise basic salary, bonus, deferred bonus, performance shares, pension and other long-term incentives. The amount of remuneration typically cannot exceed the amount prescribed by law or specified in the articles of association, and the shareholders may even sue the directors if they exceed the stated amount or pay themselves too big a share of profit, instead of distributing it as dividends.

The remuneration of the directors of Omani joint stock companies is regulated by the Commercial Companies Law (“CCL”) and the administrative decisions of the Capital Market Authority (“CMA”). The CCL has capped the annual remuneration of the chairman and the directors including their sitting fees and all other allowances payable at RO 200,000. Further, in cases where companies do not make any profit or make a low profit that is not sufficient for allocating or distributing dividends to the shareholders, the annual remuneration is capped at RO 50,000. In respect of companies whose capital has eroded no remuneration is payable.

The recent CMA decision redefining ‘independent’ director, while largely welcomed by the industry, has made it obligatory for companies to look outward for their independent directors as shareholders and their related parties are no longer allowable as independent directors on the Board and in audit committees. In light of the CMA decision, the monetary cap on directors’ remuneration has severely strained many companies’ ability to attract well-qualified individuals to serve as independent directors.