By Johnson Manyakara

Ever heard of a public fuss about Board Remuneration? Yes, this is becoming a common occurrence.  Stakeholders inside and outside the company now increasingly keep a close eye on Board Remuneration issues with virtually everything being scrutinised. If stakeholder interests are not met in the process, this often reduces confidence in the company and may result in serious reputational damage to the company. One may, therefore, ask, “How can Board Remuneration issues not keep Board members awake at night?”

The “Hawks” And Their Interests

“Hawks” are hovering around companies, both private and public, with a keen eye on ensuring their interests are met on Board Remuneration matters.

Internally, the following are amongst the “hawks”, with their primary interests indicated:

• Employees (all levels)- real or perceived equity;
• Executive Directors- appropriate individual remuneration package perceived as “fair;” and
• Works Councils/Unions- real or perceived equity. In companies embracing the philosophy of transparency in reporting, Works Council/Union views on remuneration are presented to shareholders as appendices accompanying scheduled issues in financial reports. 

External “hawks” include the following:

Shareholders-

• Appropriate remuneration which, in terms of amount and structure, can attract high quality directors;
• Equal focus on their interests and that of directors; Long-term value creation for the company; and
• For private companies, attractive overall return on investment

Shareholder Activists-

• Evaluating feasibility of Board remuneration proposals; and
• Modification of proposals at AGMs, if opportune.

Politicians, Media (including Social Media) and Wider Society-

• Need to generally reduce top perks relative to lowest wage earners.

Key Considerations in Board Remunerations Decisions

There are some key considerations in coming up with a coherent and responsible Board Remuneration Policy. Amongst them are the following:

• The company’s overall HR policy;
• The company’s DNA (i.e. Vision, Mission, Ambition and Core Values);
• The company’s business model, strategic objectives and key performance indicators (KPIs);
• The company’s risk indicators and risk appetite;
• Financial impact of variable remuneration;
• Leadership development and talent management;
• The company’s performance management system- targets setting, monitoring, measurement, assessment and remuneration;
• Governance of Remuneration: process, procedures and policies;
• Stakeholder engagement: dialogue and communication; and
• Openness and accountability about remuneration policy within the remuneration report and/or during the meeting of shareholders.

Board Remuneration: Non – Executive Directors

Non-Executive Directors (NEDs) have a critical governance role to play and bear the same level of risk as Executive Directors (EDs). The board fees paid to them are not intended to simply cover attendance at board meetings but also the time commitment for preparation and follow up as well as to keep up to date with developments within the company.

Typically, their Board Remuneration is broken down into the following elements:

• A fixed board fee, sometimes referred to as retainer fee, normally paid quarterly or annually;
• A sitting allowance, ordinarily a daily rate or an hourly rate.
• Reimbursements- normally for travel, accommodation and meals (where applicable).

As a general rule, Chairmanship of the Main Board and of Board Sub-Committees attracts additional board fees; so does membership of Board Sub-Committees. It is advised that all board fees for NEDs should not be pegged at levels that are likely to compromise the independence of the Board members. It is also generally recommended that NEDs should not participate in any performance bonus schemes or in any performance-based shares schemes since this could potentially result in conflict of interests- NEDs having to set performance targets and, at the same time, measure the resultant achievement of the set targets.

Board Remuneration – Executive Directors

With respect to EDs, the guiding principle is to offer a remuneration package that makes it possible to attract, retain and motivate the most outstanding professionals in order for the company to achieve its strategic goals within this increasingly competitive environment. The remuneration policy should seek to:

• Ensure that the remuneration is competitive in terms of structure and total value;
• Establish the remuneration, in accordance with objective standards, that recognises individual performance and the achievement of specific and pre-established quantifiable targets; and
• Set appropriate maximum limits to any variable remuneration.

Typically, EDs remuneration packages have the following elements: basic salary, variable remuneration/bonus and other benefits, including performance-based share schemes, all these being in line with what’s paid in the market at comparable companies.

Going! Going! Gone!

King IV provides elaborate standards on Board Remuneration practices. In Zimbabwe, the Public Entities Corporate Governance Act, 2018, provides for the formulation of standards of remuneration and model service conditions for non-executive board members and executive members, respectively. With increased interest by “hawks” in Board Remuneration matters, it is advisable for companies to avoid bringing adverse scrutiny upon themselves through failure, or refusal, to adopt best practice in this all important area.