CMA in bid to reveal what top executives earn

Owners of public listed companies will know how much those running their firms are paid if the Capital Markets Authority’s newly-published disclosure proposals become law.

Through a set of proposed regulations published in the official Kenya Gazette last Friday, the markets regulator is seeking an end to rampant concealment of executive pay in Kenya with the establishment of a new regime that will require detailed pay disclosure.

The CMA says the aim is to better equip shareholders for the role of determining directors’ pay, noting that the current situation in which the owners merely vote on previous year’s accounts of directors pay is untenable.

“Currently, the model articles in the Companies Act give shareholders the right to determine board remuneration at the AGM. In practice, they only approve notes in accounts stating directors’ remuneration the previous year,” the regulator says in its case for deeper disclosure.

The legal notice goes ahead to propose a detailed structure of disclosure that includes “the chief executive’s pay, share options and other forms of executive compensation that have to be made or have been made during the course of the financial year.”

If this proposal becomes law, public listed companies will no longer report executive and non-executive directors’ pay as a lumpsum, but will separate the two and go further to disclose non-executive directors’ fee as well as their remuneration.  

READ: CMA closes revolving door for directors of public firms

CMA is also seeking teeth to enforce the regulation requiring executive directors to be put on fixed contracts of less than five years; a rule the regulator says continues to be violated.

“Almost all firms did not comply (or did not understand) the requirement to establish a fixed term service contract of not more than five years for executive directors,” the CMA committee mandated to draft the code on corporate governance says.

Meshack Jorum, the chief executive of the Institute of Directors, supported the recommendations, saying they would entrench a culture of transparency and accountability in corporate Kenya.

“The tenure would ensure there is no inbreeding and issues of succession are dealt with more seriously,” he said.

None of Kenya’s 61 public listed companies have made a full disclosure of what they pay executive directors, forcing shareholders to generate estimates from the annual financial reports.

Retail chain Uchumi Supermarkets, has, for instance, recently reported that its CEO Jonathan Ciano got a pay rise of 38.75 per cent, leaving shareholders with the task of fishing for the exact figure from a sea of information in the company’s reports.

In real terms, that disclosure meant that Mr Ciano’s pay had risen to Sh26.69 million from Sh19.23 million – a detail that was only available in the retailer’s disclosure notice ahead of cross listing on the Uganda Securities Exchange.

READ: Uchumi recovery earns chief 38.7pc salary increase

The amount translates to a monthly package of Sh2.22 million, up from the previous year’s Sh1.6 million.

The increment came as the retailer reported robust profits that marked a full turnaround that allowed it to pay dividend to shareholders after an eight-year drought.

Similarly, national flag carrier Kenya Airways disclosed that executive directors’ annual pay had dropped to Sh77 million from Sh82 million the previous year without going into the details.

KQ has only two executive directors Titus Naikuni the CEO and Alex Mbugua, the group finance director. The pay cut followed a 51.4 per cent drop in the carrier’s profits. 

Executive pay has been the subject of intense public debate globally driven by shareholders’ push for deeper pay disclosures including performance bonuses and share options.

Strict salary disclosures in Europe and America have forced some companies to use other forms of reward systems such as share options to circumvent the requirement.

Early this year, Barclays Bank Plc handed out shares worth an estimated Sh47.3 billion (£32 million) to its top management. Last year, the bank came under sharp criticism after it made cash bonuses of £39.5 million to the executives who were then under pressure for rigging the Libor rate.

Barclays Bank global CEO, Anthony Jenkins, insisted that the bank had to pay the high bonuses to avoid a mass walkout of key staff.

The CMA is also proposing to give shareholders greater say in determining how much board members take home. Companies will also disclose on sums loaned out to directors.

The regulator is seeking to limit an individual to sitting on only three boards of listed companies and chair a maximum of two in a move that will push the firms to seek directors beyond current circles.

A non-executive director will serve for a maximum period of nine years in a board after which he/she will have to exit or revert to being an executive director if the recommendations that are open to public debate for 30 days are passed.