So about 20 listed companies have issued profit warnings, more private firms have also recorded huge losses, static growth and a drop in profits, but we are yet to hear anything about CEO compensation.
A Business Daily report in August 2014 noted that Kenyan CEOs used the stability of their organisations to increase their pay. Frank Ireri then of Housing Finance, Tom Gitogo then of Pan Africa Holding and Jonathan Ciano of Uchumi raised their pay significantly to join the likes of Bob Collymore of Safaricom, Joshua Oigara of KCB, Geoffrey Muriuki of Co-operative Bank, KQ CEO and Benson Wairegi of Britam.
We might all be aware that the CEO pay is determined by the board, but not the whole board. This should actually be done by the Human Resources and Compensation Committee of the board.
We could be wondering why boards are so quick to increase the CEO’s pay when the organisations are stable and keep calm when they issue profit warnings or make huge losses like Uchumi, KQ and Mumias.
So who speaks for the small shareholders who use hard-earned cash to buy shares at the Nairobi Securities Exchange and get nothing in form of dividends at the end of the year?
CEO pay should be pegged on clear indicators, discussed and negotiated on an annual performance contract, reviewed quarterly to mitigate/avert huge discrepancies between actual and expected performance. Changes on PESTEL should also be documented to anticipate trends for review.
CEO rewards should be based on continuous objective and constructive dialogue between the Human Resource and Compensation Committee.
They should consider factors such as: is the CEO’s pay, while competitive, fair in relation to what the other members of staff get? Does it encourage long-term sustainability of the organisation? Take, for example, what the KQ CEO earns in relation to the losses the organisation records monthly! Affordability is key too.
You could be reading this and thinking this guy must be so mad for having got nothing out of his shares; that is here nor there. Just recently, the Anglo American shareholders were expected to censure CEO Mark Cutifani who received 3.4 Million Euro’s as compensation last year yet Anglo American was the worst performing blue chip stock.
Similar trouble was also witnessed at BP and recently 53% of Medical Services Group Smith & Nephew investors rejected CEO Olivier Bohoun’s pay. We would love to see the CEOs of companies that have issued profit warnings take a salary cut.