The Securities and Commodities Authority stated that the members of the boards of directors of public shareholding companies receive bonuses, which are not conditional on distributing dividends to shareholders, confirming that the Commercial Companies Law specifies 10% of the net profits to calculate the remuneration of the members of the board of directors, and this was not restricted by granting the shareholders distributions.
It is noteworthy that companies listed in the local capital markets have blocked or reduced their proposed cash dividends, or postponed consideration due to the current challenges posed by the Corona virus pandemic, at a time when shareholders are asking about the continued granting of the members of the Board of Directors their allocations as they are, while Depriving them of cash dividends.
Calculating rewards
In detail, the authority confirmed, in a disclosure, published yesterday, on its website, that Federal Law No. (2) of 2015 regarding commercial companies, and not the regulations issued by the authority, determines the method for calculating the remuneration of members of the board of directors. A maximum limit that cannot be exceeded, which is 10% of the net profit for the fiscal year ending after deduction of depreciation and reserves, and therefore the basic condition for calculating and disbursing the bonus is that the company will achieve net profits during the fiscal year, as Article No. (169) of the law stipulates the following: "The company's system shows the method of calculating the remuneration of the members of the Board of Directors, and this bonus must not exceed (10%) of the net profit for the ending fiscal year, after deducting all of the depreciation and reserves."
The Authority indicated that the said article did not restrict the possibility of granting a reward to the members of the Board of Directors, in the event that a profit is distributed to the shareholders of the company for the fiscal year or not, amending the previous article in the old law.
The General Assembly
She added that the Companies Law has granted the general assembly, and they are in fact the owners of the company, the authority to approve the reward and value of the board of directors, as well as the authority to approve dividends, according to Article (177), which stipulates: “The annual general assembly of the company is concerned with: In particular, by considering and deciding on the following issues:
■ The report of the Board of Directors on the company's activity and its financial position, during the year, the report of the auditors and the report of the Internal Sharia Supervision Committee, if the company practices its activities in accordance with the provisions of Islamic Sharia and their ratification.
■ Company budget, profit and loss account.
■ Election of members of the Board of Directors when necessary.
■ Appointment of members of the Internal Sharia Supervision Committee, if the company operates in accordance with Islamic Sharia.
■ Appoint auditors, and determine their fees.
■ Board of Directors' proposals regarding the distribution of dividends, whether they are cash dividends or bonus shares.
■ Board of Directors' proposal regarding the remuneration and determination of the members of the Board of Directors.
■ Discharge the members of the Board of Directors, or dismiss them, and file a claim of liability with them .. as the case may be.
■ To absolve the auditors from their liability, or to isolate them, and to file a suit against them, as the case may be.
Board of Directors
The commission indicated that, according to the aforementioned legal texts, the remuneration of the board of directors is determined during the presentation to the general assembly, and it is not left to the board of directors.
The Authority clarified that it is not permissible to pay an attendance allowance to the Chairman or a member of the Board of Directors for Board meetings, since Article No. (29) of the Corporate Governance Manual of the public shareholding companies issued by the Authority’s Board Chairman’s Resolution No. (03 / R) for the year 2020, In the second item, the mechanism for the exchange of allowances and expenses has been organized, stipulating: “The company may pay additional expenses, fees, or bonuses, or a monthly salary to its board members, in accordance with the policies proposed by the Nomination and Remuneration Committee, and it is reviewed by the Board of Directors, and approved by the association The company’s general assembly, if the member works on any committee or makes special efforts, or does additional work to serve the company above his regular duties as a member of the company’s board of directors, and it is not permissible to pay an attendance allowance to the chairman or member of the board of directors for board meetings ».
She pointed out that the company's decision to distribute dividends to shareholders is governed by several requirements, which are the extent of the availability of sufficient liquidity for distribution, the company's plans to expand, as well as the obligations and financial requirements expected from the company to be paid during the year, which affect the liquidity available to the company.
Operating profit
The Securities and Commodities Authority confirmed that the operating profits appear in the income statement before deducting depreciation, allocations, general and administrative expenses, taxes, and other expenses not directly related to the activity, as well as other income, and those items and how they are calculated, in accordance with international accounting standards and international financial reporting standards, and therefore The net profits or losses, which appear at the end of the income statement, is the standard used to determine the profitability of the company, and used when calculating the remuneration of the members of the Board of Directors, according to the requirements of the Companies Law. She pointed out that the process of revaluation of the assets is being handled in accordance with international accounting standards and international financial reporting standards, so that the revaluation differences appear within the rights of shareholders in the list of financial position directly, and are not addressed in the income statement, unless this asset was disposed of through Sale, the financial statements are reviewed and audited by an external auditor, and the extent to which these statements are consistent with the requirements of international standards and regulatory laws is verified.
- the basic requirement for the calculation and payment of bonus, is that the company 's net profit achieved during the fiscal year.