COMPENSATION OF THE BOARD OF DIRECTORS 1 Essay Example

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Compensation of the Board of Directors

Compensation of the Board of Directors

The purpose of this essay is to evaluate the compensation of the board of directors in the Middle East with reference to the case of the UAE. According to the corporate governance in the UAE, the compensation of the board members is not supposed to exceed 10 percent of the company’s net profits after deductions for depreciation, reserves, and shareholder distributions of no less than 5 percent of the organizational capital. In accordance with the New Code, it is obligatory for the organizations to pay ancillary expenses or fees or a monthly salary for the board members working in a committee, making special efforts, or executing additional duties beyond the normal duties of the board member (Hassan 2012). These attributes are critical in ensuring that organizations in the UAE address the desires and expectations of the consumers, directors, employees, and shareholders or investors.

The company’s executive compensation program proves to be effective and efficient in motivating, as well as paying for the desired performance. This is through integration of the clear guidelines for the executives to work with specific goals and targets. The strategy ensures that the executives aim at improvement of the net earnings of the company. The compensation strategy plays a critical role in the determination or placing of the limit on the remuneration of the executives (Baydoun, Maguire, Ryan, & Willett, 2012). The approach contributes towards motivating the executives to work effectively and efficiently with the intention of maximizing the volume of revenues or profit levels at the end of each fiscal period.

The compensation strategy is ideal in supporting the strategic decision of the company. The objective of the organization is to oversee maximization of the revenues and profit levels, thus, the opportunity for the integration of valuable salaries and wages to the employees. From this perspective, integration of the limit is essential in motivating workers and executives to facilitate the achievement of the goals and targets at the end of each operational period.

It is evident that the board of directors understands and approves the level of risk inherent in the organizational compensation philosophy. This is highly evident in the integration of the New Code, which is vital in enhancing effectiveness and efficiency, as well as flexibility in the determination of the wages of the executives. The approach plays a critical role in the course of enhancing the awareness of the board on the potential risks related to the compensation strategy (Aljifri & Moustafa, 2007). There are four critical compensation-related risks affecting the organization. These risks include financial, operational, reputational, and talent-related risks, which play critical role in the determination of the compensation strategy.

In the context of the UAE, the issue of executive compensation tends to undergo integration into the board discussions about the risks (Kamal Hassan & Saadi Halbouni, 2013). This is because of the sensitivity of the essence of compensation in accordance with the demands and expectations of the target audiences. I tend to work in a government or public sector in the UAE, thus, the platform for the provision of quality services and expectations in the modern context.

References

Aljifri, K., & Moustafa, M. (2007), “The impact of corporate governance mechanisms on the performance of UAE firms: an empirical analysis,” Journal of Economic and Administrative Sciences, 23(2), 71-93.

Baydoun, N., Maguire, W., Ryan, N., & Willett, R. (2012), “Corporate governance in five Arabian Gulf countries,” Managerial Auditing Journal, 28(1), 7-22

Hassan Al-Tamimi, H. A. (2012), “The effects of corporate governance on performance and financial distress: The experience of UAE national banks,” Journal of Financial Regulation and Compliance, 20(2), 169-181.

Kamal Hassan, M., & Saadi Halbouni, S. (2013), “Corporate governance, economic turbulence and financial performance of UAE listed firms,” Studies in Economics and Finance, 30(2), 118-138.