An Eye on Saudi Blog

One of the most important issues that accompanied the current financial crisis was the debate over the excessive pays top executives were receiving despite the fact that their organizations were failing, and failing big time!  President Obama was the one who disturbed those Wall Street giants by starting to shed the light on their unbelievable compensations when compared to their lousy performance; he even described the situation as being ‘shameful’ in one of his speeches. Now, although Saudi Arabia has been going through this crisis with a lot of dignity because of its conservative financial policies, still we are part of the world and we have been hit by the recession in a way or another. However, the issue of executives’ salaries has not made it to the public attention, given that it should’ve made it a long time before, in the time of the repeated stock market failures.

It should be noted here that the debate about executives’ salaries and compensations is not new. It has been around in the management literature for a while now. Most of the recent articles on the subject tend to argue that executives should be compensated for their performance in reaching their organizations’ long term strategies. On the other hand, there are those who argue that these pays are justified in a sense that they are paid to attract management talents and provide the required incentives for them to perform. Furthermore, there are always some ethical issues surrounding any such argument especially towards shareholder in general and, nonetheless, toward the organization own employees. It could be expected and, somehow, accepted to reward outperforming leaders; those who are revolutionary in their visions and contributing a great deal of their time and efforts to maximize their shareholder value. But how can a one justify the skyrocketing benefits to underperforming, typical, visionary-less kinds of managers (I did not say leaders) who happen to be on the top of big companies, and yes, they exists! My favorite management thinker, Peter Drucker, is arguing that everybody in an organization play his/her own part in deciding the whole organization destiny. So Drucker stated, while talking about US big shots, that ‘executive salaries at the top were clearly out of line with the responsibilities of those holding these positions.’ Moreover, he recommended that the executives’ salaries should not be more than 20 times the average employee salary.

Now let’s get back to the Saudi business world. It’s a fact that some companies are paying their big guys some big chunks of money. But we have to be honest; on average, they do not resemble their counterparts in USA. The Saudi corporate governance regulations for the publicly listed companies rule that companies have to show the total salaries and compensations paid for the top five executives (CEO and CFO should be included if they are not among the big five (yeah … right!)). However, these regulations are not mandatory yet, but some companies already started to adhere to them. So I did some research and calculations and found some interesting results. Some successful companies (successful=making a reasonable profits and paying rewarding dividends) are not doing bad at all, the average of executives paying is about 30 times the average salary in their organizations. While some average performing companies, and sometimes underperforming ones, are paying up to 150-200 times the average salaries! And please note that this is a quick-not-so-scientifically-accurate prediction.

At the end, with the repeated stock market failures, recession, and bad performance; companies’ leaders should be held accountable as they are responsible for their companies’ performance. After all, they are playing a big role in our economy, and their decisions, sometimes, have a direct impact on our lives. As it is encouraged to reward distinctive talents, poor managers should not be rewarded for wasting their shareholders value.