Remuneration for board of directors Thursday, 10 March 2011 01:56

We have been seeing since the beginning of the year companies and financial institutions announcing their financial statements for the year.

There is no doubt that this is the happiest time for the members and chairpersons of the Boards of Directors because the declaration of the balance sheets of the companies is followed by the determination of the annual bonuses awarded by companies as they represent the highest category accounting for the lion’s share of the profits.

In this regard, Article 118 of the Companies Act No 5 of 2002 regarding the remuneration of members of the Board of Directors of joint stock companies, points out that “the company’s primary system shows the method for determining the remuneration of members of the Board of Directors. This may be a certain percentage of the profits of not more than (10 percent) of the net profit after the deduction of reserves and legal deductions and the dividend at least (5 per cent) of the paid up capital to the shareholders. The provision in the company act allows the members of the board to get a lump sum in case of company’s failure to achieve the profits provided it has the approval of the general assembly and the ministry may fix a maximum limit for this amount.

The reward ratio has been modified after the approval of the Council of Ministers on the recommendation of the Advisory Council and the remunerations of members of boards of directors and the banks will not exceed “5 per cent” of the net profits, provided that the reward will not exceed 500,000 riyals for each member.”

Needless to say that the conditions of candidacy for membership of the board of management include that a candidate owns a certain percentage of the shares of the company and the same be frozen with the candidacy. The candidate cannot buy or sell the shares. The grant of that amount to the member of the board of directors is considered as a compensation for the effort he made throughout the year in increasing the company’s profits and freezing his own shares without benefiting from them.

There is no doubt that membership of the board of directors is not a voluntary action, but it is the work which requires each member to devote time and effort to achieve the company’s interest as he will be held accountable for his actions before the members of the general assembly and most of the candidates for the membership of the boards of directors will be businessmen.

In spite of the law for the rewards for board of directors, they get more under different allowances or against the attendance in the meetings of the board of directors or other allowances for administrative or advisory work.

This makes these rewards and allowances a drain for shareholders and partners and does not commensurate with the effort provided by the member during the period in which they hold the position of the membership or the presidency of the board of directors.

So it was more likely that the law prohibits the members from getting any benefits or other allowances in order to tighten the control on the capabilities of the companies, achieve the purpose of the legislature and prevent the circumvention on the quota set by law and the maximum mentioned under any other name.

Needless to say that the human element is one of the most important factors of production and the contract of the companies with the human resources that will be replaced by a worker or employee who will perform a particular job against a known fee and the company as a legal entity will manage the same and provide the human element in order to perform its activity and each individual has a specific role for that, so we find the differences and diversity in the degree of the functional ladder, and each employee has his role as a circle in the chain of workers, which aims to achieve the best output. In every producing unit of the company, each employee has a role no matter how high or low the degree of the functional ladder is. Every employee is considered as a cog in a machine which does not run if a small cog is taken out.

There has been a custom to allocate a portion of those profits for the dividend for those who are in charge of that companies and organisations including employers and workers as the senior employees who hold the highest degree of the functional ladder take the top position and enjoy an abundant share of the profits and the surplus of the profits that have been allocated for distribution goes downward from top to bottom starting from the director-general then heads of management and heads of the departments, etc. ... The lower grade employees have a share of the annual bonuses even if it is crumb and it makes them happy and it raises their morale until the next date of the reward if they had a share and continued to retain their jobs.

The importance to be given to the role of law in determining the rights and duties on the basis of objective away from the personal standards which make the interpersonal relationships and the personal adulation a means to upgrade and get the rewards and undue advantage .

Therefore, the lack of reference to determine a minimum value of the reward, which is distributed to workers left the matter for the evaluation of the management only, without the requirement of a minimum or a specific percentage to guide the management at the time of distribution of profits to workers, especially in the private sector, which accounts for a large percentage of the Qatari market.

Where the employee does not enjoy a clear binding right at the end of the fiscal year in the percentage of the profits, although it is recognised that the company’s realisation of the profit is the result of the effort that is made by the staff in the institutions and companies so it is fair for them and their employers to have a share in the annual profits with a force of law.

This feature or the provision on the right develops for the employee an attribute of loyalty and makes him feel as if he belongs to the institution for which he works out and achieve what is called a good job and makes the employee work on improving the quality of the product and develop the same because he knows that he is a partner in the work and has a share in the profits and not an agent or employee who shall receive a salary only.

Finally, all companies are required by the law to disclose the remuneration paid to members of boards of directors in their balance sheets or refer to non-payment of such rewards at the time of announcement of the company’s annual profits.