Transparency will show whether top bosses are really worth their hefty salaries

Want to find out what the UAE's top executives are being paid? Well, you may have to wait until the concept of disclosure is fully adopted by companies in the Emirates.

In a world where executive compensation makes headlines for all the wrong reasons, it may appear to the untrained eye that all senior executives are overpaid for the returns they generate.

For example – is it fair that the average American chief executive is paid 331 times more than the average salary of employees in their company? Or is it reasonable for the US’s highest paid chief executive (Charif Souki of Cheniere Energy) to be paid a whopping $142 million for a year of work in 2013? Analysts in the market would say yes, as he has delivered a 30-fold increase in share prices since 2009 and therefore is worth every cent. However, the average man in the street would see this as an absurdly high level of pay.

Pay levels in this region, however, are not in the same league as executive compensation levels in Europe and the US. We don’t see evidence of the “fat cat” culture proliferating executive compensation in the UAE and the wider GCC. But therein lies the problem; we don’t actually see real evidence on executive pay because disclosure is non-existent. My point of view is based on the clients our firm has in the region and the compensation data we hold for those individuals.

The sense of outrage in western geographies is based on hard facts and real data. This is because stock exchanges demand that listed companies need to fully disclose how much they pay their senior executives and how that pay is delivered. Shareholders have full visibility on all aspects of compensation and they actually have the power to block proposals on executive compensation. Many corporate compensation advisers now spend most of their time visiting institutional shareholders to solicit their approval for any proposed changes in executive pay. This means that there should be no surprises when the plans that shareholders have approved actually pay out.

So how does this work in the UAE and the wider GCC?

The answer is that it doesn’t work very well, if at all. The concept of disclosure is alien to this market and we see very little evidence that this will change, because no company wants to be the first to disclose.

Furthermore it is unlikely to change unless there is significant regulatory pressure for companies to share this information with their shareholders. Currently in the UAE there are provisions in place for a more professional approach to executive compensation regulation under decree No 518 of 2009 on rules and regulations of corporate governance and institutional code of conduct. The rules are related to the formation of a remuneration committee, which is the first line of review on behalf of shareholders as a check on executive pay. However, although the rules have been in place since 2010 there are few companies which follow them in the spirit in which they were created.

The Saudi Capital Market Authority has gone one step further –it actually publishes aggregate pay levels for the top executives in the biggest listed companies inside the kingdom. This is a fairly blunt instrument, but it does allow some analysis of executive compensation, and Mobily has topped the chart for the last two years.

So aside from idle curiosity about the size of the numbers, why should the region embrace disclosure? Firstly it is critical that shareholders are able to hold executives accountable for the results they deliver, so linking their pay to their performance is essential. Secondly, by creating a culture of transparency it will be easier to create a benchmark pay deal linked to the market rate for each role and attracting top-class talent to the region could become easier. Last but most critically, if our market is to grow, corporate governance will have to improve as a critical step towards attracting external investment into the local market.

It is not likely that we will see a transformation of the executive compensation landscape this year, but if the region is to follow global best practice we may find out what the UAE’s top executives are being paid in the next few years. This will help shareholders to understand the value for money they are getting from their executives, not to mention helping my fellow consultants understand what the pay landscape really looks like.

Martin McGuigan is a partner at Aon Hewitt Middle East, where he leads the reward consultancy practice

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