Equity Group #ticker:EQTY has become the second big bank to report its directors’ remuneration under the newly introduced reporting rules, indicating that it paid its chief executive, James Mwangi, Sh56.74 million for the year ended December 2017.
The bank, Kenya’s second largest by assets, says Mr Mwangi was not paid a bonus for 2017 but earned Sh3.7 million in unspecified allowances, raising his total pay to Sh60.4 million.
At Sh60.4 million, Mr Mwangi’s monthly salary compares well with his KCB #ticker:KCB counterpart, Joshua Oigara, who took home Sh65 million in basic pay and allowances.
Mr Oigara’s total remuneration, however, jumped to Sh265 million, when his bonus is factored in, making him one of the best-paid executives in Kenya.
Besides a salary, Mr Mwangi is among the major shareholders at Equity who earn millions of shillings in dividends from the bank.
He is set to receive gross dividends of Sh490 million next month, assuming his previously disclosed stake of 6.5 per cent remains intact.
KCB and Equity are Kenya’s two biggest banks, with Sh646 billion and Sh524 billion in assets respectively.
KCB also topped the banking sector overall profitability with Sh19.7 billion profit compared to Equity’s Sh18.8 billion. Equity, however, leads with a return on equity (RoE) of 20.2 per cent, enabling it to trade at a high premium on the Nairobi Securities Exchange (NSE) where it leads other banks with a market capitalisation of Sh206 billion.
KCB, whose RoE stands at 18.5 per cent, is second with a market value of Sh165.5 billion. KCB, however, has the largest absolute cash return of Sh9.1 billion or a dividend of Sh3 per share, followed by Equity’s Sh7.5 billion or Sh2 per share.
Public-listed companies are required to state the total compensation of each director, including salary, bonuses, pension and expenses charged to the company.
“A directors’ remuneration report shall state, for each person who has served as a director of the company at any time during the relevant financial year, the total of the sums (paid or receivable) … for the financial year preceding the relevant financial year,” the law states.
Equity’s disclosure comes after KCB last week set the pace with a detailed report on each director’s salary, allowances, bonuses and non-cash benefits.
KCB also provided a justification for its directors’ remuneration in a disclosure that is so far the closest to the demands of the new reporting regulations.
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Equity says its executive directors, including Mr Mwangi, are paid a salary, pension and other unspecified benefits.
“Executive directors are eligible to participate in the group’s bonus scheme, which is anchored on achievement of key business performance indicators, but are not entitled to earn fees or sitting allowances,” the bank says.
The Capital Markets Authority (CMA) said it was studying Equity’s report to determine whether it fully complied with the reporting requirements.
“The authority is in the process of reviewing the adequacy of the disclosures in light of the code on corporate governance and regulations and will give appropriate feedback on the outcome of this review,” the CMA said in a statement.
The regulator, however, added that it is not the entity tasked with policing compliance with the Companies Act, suggesting that the Registrar of Companies was the right agency.
The CMA also admitted that it has not prescribed the format of disclosure of director’s remuneration, meaning shareholders should expect large variations in the structure of reports.
Each director of a public-listed company who knows that their company has published a remuneration report that does not comply with the requirements of the Companies Act is liable to a fine not exceeding Sh1 million.
Equity says in the annual report that the remuneration structure of its directors is not subject to audit and is set by the board.
Listed firms have so far kept their disclosure to obeying the letter of the law but appear hesitant to go the extra mile of telling shareholders what performance is expected of executives.
Besides, no company has so far disclosed the pay criteria, an evaluation of the previous year’s performance and the chosen benchmarks, as required by the law.
This means that the board of directors will continue to be the sole custodian of this information to the exclusion of minority shareholders.
Developed markets such as the US, which Kenya is trying to emulate, have more rigorous pay disclosure and accountability rules that require companies to specify what will entitle executives to larger salaries or more shares besides mechanisms for clawing back pay from employees who expose their company to unacceptable losses.
Local listed firms have only stated that they try to make sure their executives’ remuneration is competitive based on market surveys of what their competitors and peers are paying for top talent.
“The board reviews and recommends the remuneration structure of directors annually, subject to shareholder’s approval. Directors’ remuneration is linked to performance but is competitively structured to attract and retain the best talent to effectively develop the group’s business,” Equity says in the report.