Attorney-General Githu Muigai has published a new set of rules that will force companies listed on the Nairobi bourse to make public a breakdown of directors’ pay in a fresh move meant to deepen transparency and strengthen corporate governance.
The radical guidelines also provide that shareholders must vote to approve directors’ pay, ushering in a pay-for-performance regime that may see directors of loss-making companies take a pay cut to match the dwindling fortunes of the firms they lead.
Publicly traded firms will also have to disclose details of payments to executive and non-executive directors for the past five years, laying bare how NSE-listed firms have been pampering board members.
Dubbed the ‘Companies (General) (Amendment) Regulations, 2017,’ the new rules will end the current practice where listed firms only provide an aggregate amount of total director emoluments, leaving shareholders with no means of knowing what executives and directors take home.
“A directors’ remuneration report, in relation to each director, who served at any time during the year shall contain the total amount of salary and fees paid to, or receivable by the director, in respect of qualifying services,” Prof Githu says in the regulations meant to operationalise the Companies Act, 2015.
The directors’ pay report will be included in the companies’ annual financial statements.
Making public benefits paid to directors and key management such as CEOs is expected to offer deeper insights into Kenya’s executive pay structure and improve accountability as investors get a better feel of how directors are rewarded against their performance.
The Githu rules comes after the Capital Markets Authority bowed to pressure and discarded proposed regulations it made in 2014, which would have forced listed companies to disclose the payments with better clarity.
Under the new rules, NSE companies will now have to file returns showing how shareholders voted to approve directors’ remuneration, and make public “a summary of the reasons for those votes” in the event a significant ratio of owners reject a pay proposal.
“A ‘director’ means any person who serves as a director of a quoted company at any time in the preceding five years,” the rules say.
The rules are expected to lift the lid on salaries that past chief executives of loss-making firms such as Kenya Airways’ #ticker:KQ Mbuvi Ngunze, Uchumi’s #ticker:UCHM Jonathan Ciano and Mumias’ #ticker:MSC Errol Johnston took home.
The disclosures also include payments made to persons who are ex-directors but are still receiving some form of compensation such as Mr Ngunze, who is now a consultant for KQ.
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Disclose all perks
In addition to salaries and fees earned as directors, the remuneration report must disclose other benefits received such as bonuses, pension, gratuity, all allowances, sitting perks for every board meeting or board committee meeting attended, travel, and per diem when away on official duties.
The companies will also have to disclose total amounts payable for loss of office or termination of services of a director (commonly known as golden parachutes), and the total estimated value of any benefits other than in cash such as company car or driver.
The directors’ remuneration report will also include details of any share option scheme, number of shares awarded, exercised, price paid and the timings for such offers.
“The draft regulations have proposed significant disclosure and reporting changes in relation to the compensation and remuneration of directors of listed companies – primarily that such reporting is now required on an individual and itemised basis,” said Rosa Nduati-Mutero, a partner at law firm Anjarwalla & Khanna, in a research note.
Sameer Africa #ticker:FIRE has already disclosed the emoluments of each board member for 2016, including that of chief executive, Allan Walmsley, becoming the first publicly traded firm to match the requirements of the draft regulations.
Mr Walmsley’s annual pay remained frozen at Sh25.909 million in 2016, comprising Sh20.76 million in basic pay and allowances, Sh649,000 in non-cash benefits (motor vehicle, telephone allowances), and Sh4.5 million in gratuity, according to the latest annual report.
Erastus Mwongera, the company’s chairman, was, for instance, paid Sh233,333 per month or Sh2.8 million in 2016.
Sameer Merali, the son of the company’s majority shareholder Naushad Merali, was paid Sh45,000 per month or Sh540,000 for the year under review.