Why Equity Plans Matter in KSA
Equity compensation is transitioning from a “nice-to-have” to a strategic rewards tool in Saudi Arabia, especially for companies preparing for an initial public offering (IPO). Companies in the Kingdom have traditionally relied on cash-based long-term incentives (LTIs), but they are now recognizing that equity-based plans:
- Align key executives and employees with long-term shareholder values
- Support retention through vesting periods, especially across IPO milestones and post IPO performance-based conditions
- Build a culture of ownership and performance
- Deliver a cost-effective reward mechanism where part of the cost is transferred to the market via equity appreciation from grant to vesting
When a company goes through an IPO event, it creates an opportunity to institutionalize employee ownership of the company.
By virtue of the fact the company is now publicly traded it must transition from discretionary awards or profit share arrangements, to structured, performance-linked equity plans such as restricted stock units (RSUs), stock options, or employee stock purchase plans (ESPPs).
A well-thought-out, carefully designed and fully implemented equity plan can run throughout the lifecycle of a company from the early founding stages, through to a potential exit (i.e. IPO) and then can continue into the next stage of growth for the company as it embarks on operations as a publicly listed company.
Companies considering an IPO should start planning for the use of an equity-based incentive as early in the process as possible
A Legal View on Equity Plans in KSA
As of now, Saudi Arabia lacks a dedicated statutory framework for equity plans, especially for private companies, which creates certain legal challenges:
Pre-IPO Legal Hurdles:
- No statutory clarity under Sharia law
- Foreign and non-Gulf Cooperation Council (GCC) employee participation is restricted under Saudi company law
- Requires workaround structures such as:
- Synthetic equity (cash-settled phantom plans)
- Offshore special purpose vehicles (SPVs) to issue units or shares indirectly
- Sweat equity schemes with shareholder approval
Post-IPO Legal Landscape:
- Equity issuance is easier under Capital Market Authority (CMA) regulations
- Grants must be approved by shareholders via Extraordinary General Assembly and structured through company bylaws
- Can use treasury shares or new issuances
- Full compliance with CMA rules (e.g. Corporate Governance Regulations) is mandatory
- Enables direct participation by Saudi and Non-Saudi-resident employees with less need for offshore or synthetic setups
Managing Equity Plans Effectively (Pre- and Post-IPO)
To navigate legal, cultural, and administrative complexity, effective equity management must include:
Pre-IPO:
- Start planning to build equity pools, retention schemes, and IPO-triggered RSUs or employee stock ownership plans (ESOPs)
- Set up governance infrastructure like a Compensation Committee
- Align grants to value-creation metrics (e.g. total shareholder return (TSR), earnings before interest, taxes, depreciation, and amortization (EBITDA))
- Communicate equity mechanics to build employee understanding and trust
Post-IPO:
- Continued structured equity-linked LTIs with multi-year vesting for long-term alignment
- Consider rolling out Employee Stock Purchase Plans for broader employee ownership
- Use trustees or administrators to handle share tracking, vesting, compliance, and reporting
- Address executive retention risks post-windfall (after IPO liquidity events)
- Maintain ongoing CMA disclosures and bylaws compliance for new grants
Using Trustees in Administering and Managing equity plans
Running equity plans involves complex tasks such as legal filings, tracking vesting schedules, handling share transactions, and keeping details confidential. These tasks require specialist skills and can be challenging for internal teams, leading to errors, delays, regulatory breaches, or unwanted disclosure. That’s why it’s wise to hire professional trustees who can not only hold the shares in a secure or compliant way using structures such as Employee Benefit Trusts (EBTs) or SPVs, but also:
- Manage awards, vesting, transactions, and reporting so your team stays focused on the business
- Use secure, automated systems to ensure compliance, protect sensitive data, and handle local and international tax rules
- Navigate tax laws and governance requirements, and set up share-warehousing or recycling to balance liquidity and dilution
- Support a global workforce through regional offices plus a central hub for cost-effective service
From plan design through IPO and beyond, an equity administrator can roll out different award types in stages, phantom shares early on or RSUs post-IPO, without reinventing the wheel. Outsourcing this work brings operational efficiency, regulatory confidence, and sustains motivation through true ownership.
A Turnkey Pre‑ and Post‑IPO Equity Plan Solution
Comp & Ben Middle East, Al Tamimi & Company, and CSC have developed a turnkey solution specifically tailored for Saudi companies preparing for IPOs:
- Comp & Ben Middle East: Designs competitive, performance-linked equity plans that align with shareholder value creation.
- Al Tamimi & Company: Provides legal structuring and ensures CMA and Companies Law compliance, especially for board and executive grants.
- CSC: Offers Trustee and Plan Administration services, along with access to a licensed fund vehicle (SPV) to allow indirect ownership, including for non-Saudis, through fund units.
This collaboration enables companies to:
- Navigate complex equity structuring barriers.
- Ensure legal and regulatory compliance.
- Foster inclusive ownership cultures.
- Launch cost-effective, scalable, and compliant equity plans for pre- and post-IPO.
Equity compensation has become a strategic differentiator in KSA’s IPO landscape. With legal hurdles and operational complexities to overcome, success lies in early planning, tailored structuring, and expert-led implementation. The combined solution by Comp & Ben, Al Tamimi, and CSC offers a compliant, and high-impact path for Saudi companies to embed equity as a core pillar of IPO readiness and long-term value creation.
Sanjar Rahman, Associate Partner, Compensation &Benefits Middle East, http://compandbenmiddleeast/sanjar-rahman
Charlie Germain, Director, Executive Compensation Services, CSC, www.cscglobal.com/service/entity-solutions/executive-compensation-services/
Richard Catling, Partner, Corporate Commercial, Al Tamimi & Company, www.tamimi.com/find-a-lawyer/richard-catling/
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