The level of executive compensation in these firms was high enough to significantly influence the bottom-line.
However, there was no disclosure of the performance targets against which the corporate leaders were paid.
Only BAT Kenya gave a detailed account of how it remunerates its top leadership, taking a leaf out of its London-based parent company’s executive compensation policy and disclosure rules.
Twelve Nairobi Securities Exchange-listed companies are bearing the heaviest executive compensation burden as measured against their profitability, recent pay disclosures show.
Top of the list are cement maker ARM #ticker:ARM, national carrier Kenya Airways #ticker:KQ, TransCentury #ticker:TCL, Deacons #ticker:DCON, East African Cables #ticker:CABL, Home Afrika and Express Kenya #ticker:XPRS, which paid their bosses tens of millions of shillings even as they sank into losses.
Sameer Africa #ticker:FIRE, Sanlam Kenya #ticker:PAFR, HF Group #ticker:HFCK, BOC Kenya #ticker:BOC and Flame Tree Holdings #ticker:FTGH, which paid their executives sums equivalent to more than half net earnings, were second in the queue.
The level of executive compensation in these firms was high enough to significantly influence the bottom-line but there was no disclosure of the performance targets against which the corporate leaders were paid.
Only BAT Kenya #ticker:BAT gave a detailed account of how it remunerates its top leadership, taking a leaf out of its London-based parent company’s executive compensation policy and disclosure rules.
BAT said its executives are paid a bonus when the company’s market share grows by 20 per cent and operating profit rises 40 per cent.
The cigarette manufacturer’s executives are also allotted stock in the London-based parent company after total shareholder returns, including dividends and capital gains, rise 20 per cent and the net turnover jumps 20 per cent.
Leading the outsize executive pay scale – relative to profitability — is ARM whose chief executive, Pradeep Paunrana, was paid a total of Sh114.7 million in the year ended December, even as the company returned a net loss of Sh6.5 billion.
The deeper loss has exacerbated the pain of ARM’s long-term shareholders, who have endured a dividend drought, dilution and a share price collapse – cutting the value of their investment by more than 90 per cent in just three years.
National carrier Kenya Airways, whose former CEO Mbuvi Ngunze walked away with Sh104.8 million in a year of massive loss, was second in the red executive pay pool.
Mr Ngunze was paid the amount as his early exit payoff, making it part of the onerous bills the airline has had to dispense with over the past two years.
KQ’s long-term investors have also lost more than 90 per cent of their paper wealth from a mix of dilution and a sharp drop in the share price.
The company’s new CEO, Sebastian Mikosz, whose term runs out next year, has been tasked with turning around the airline and it remains to be seen whether he will fly it through the turbulence and land it on profitable grounds.
It was no different for TransCentury chief executive Nganga Njiinu, who earned Sh35.4 million, even as his company returned a net loss of Sh4.3 billion on the back of lower sales and massive legal settlements.
Though other companies on the list were profitable, their CEOs’ pay stood out as one of the single-largest expenses, amounting to more than half of net earnings. Corporate governance experts described the phenomenon as pointing to a firm's weaker performance or outright exorbitant executive pay that is often associated with weak boards of directors.
Sameer Africa’s CEO, Allan Walmsley, for instance, was paid Sh25.9 million or nearly twice the tyre distributor’s net earnings of Sh13 million in the year ended December 2017.
Sanlam’s former chief executive, Mugo Kibati, pocketed Sh53.6 million, a figure that was marginally higher than the insurer’s net profit of Sh53 million in the same period.
BOC Kenya’s former CEO, Millicent Onyonyi, was paid Sh28.9 million or 73 per cent of the gas manufacturer’s net profit of Sh39.3 million while Flame Tree’s Heril Bangera took home Sh22.4 million in the year ended December, an amount equivalent to 56 per cent of the company’s net earnings of Sh39.7 million.
This list also includes HF Group’s Frank Ireri, who was paid Sh64.4 million or 51 per cent of the firm’s Sh126.2 million net profit in the same period. Mr Ireri is set to leave the mortgage financier next year.
Most of the highly paid CEOs took nearly all of their compensation in cash and have few or no shares in their companies, sidestepping the major paper losses suffered by shareholders.
Mr Paunrana of ARM and Mr Bangera (Flame Tree) are the exception, having retained large stakes in the companies they manage, giving them some measure of credibility with their fellow shareholders who are similarly exposed to gains and losses.
