CMA’s proposals on executive pay disclosure diluted
Capital Markets Authority acting CEO Paul Muthaura with Catherine Musakali, CMA corporate governance steering committee chairperson, during a workshop at the InterContinental Hotel, Nairobi, June 25, 2014. Photo/DIANA NGILA
What you need to know:
The disclosure was to help company owners gauge whether directors’ remuneration was in tandem with their performance. Executive pay has been a subject of intense public debate globally driven by shareholders’ push for pay disclosure including performance bonuses and share options.
None of Kenya’s 61 publicly listed companies has made a full disclosure of what executive directors earn, forcing shareholders to generate estimates from annual financial reports.
Capital Markets Authority proposals that would have helped shed light on executive pay in listed companies have been watered down by market players.
CMA had proposed in a draft code of governance that each director’s pay be disclosed to shareholders, but this has been dropped from the script that will be forwarded to Parliament for consideration as subsidiary legislation.
Also dropped was a requirement that executive directors serve for only five years.
“Due to privacy issues and security of individual remuneration, disclosure will be aggregated in two blocks without a breakdown of the individual members,” said CMA’s acting CEO Paul Muthaura.
Remuneration of non-executive directors will be lumped together while that of executive directors will be consolidated and reported as one figure in the company’s annual report.
The disclosure was to help company owners gauge whether directors’ remuneration was in tandem with their performance. Executive pay has been a subject of intense public debate globally driven by shareholders’ push for pay disclosure including performance bonuses and share options.
With the proposals Kenya looked set to join an elite group of countries which have opted to lift the veil on the issue.
None of Kenya’s 61 publicly listed companies has made a full disclosure of what executive directors earn, forcing shareholders to generate estimates from annual financial reports.
The regulator’s effort to enforce a rule requiring executive directors to be put on fixed contracts of less than five years was also dealt a blow after being rejected by the public. The market players argued that the process of recruiting executives was time consuming and expensive.
CMA had set the rule in order to avoid in-breeding in companies and entrench succession plans but contributors to the proposals rejected the move stating that it was unfair to let go of a performing executive based only on expiry of their terms.
However, the time cap of nine years placed on non-executive director was retained.
Public commentators also rejected CMA’s proposal that listed firms disclose their top 10 procurement contractors, arguing that the move would expose them to legal suits due to confidentiality clauses.
CMA had sought the disclosure so as to enforce transparency, especially in instances where a principal shareholder is also a major supplier to a company.
The regulator, however, retained a proposal requiring listed companies to change their external auditors every six to nine years. CMA had constituted a committee in 2012 to write a new code on corporate governance after vicious boardroom wars rocked some listed companies, leading to drastic loss of value.
The committee released its draft last month for public debate before the final copy is submitted to Parliament which will give CMA power to enforce the regulations.
Boardroom wrangles saw CMC Holdings’ shares suspended from trading at the Nairobi Securities Exchange for more than two years before a takeover bid was put in by Dubai-based Al Futtaim, saving shareholders from further losses.
