Transparency in executive pay package
By Aham Njoku
RECENT developments in corporate governance around the world which favour transparency as it affects executive pay package of publicly quoted companies is a wake-up call to the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC) to issue new directives making it compulsory for Publicly Quoted Companies (PLCs) to publish the salaries and allowances of all directors and top management staff in the brochure for their Annual General Meetings (AGM).
With renewed interest of the investing public in the activities of the NSE fuelled by the re-capitalisation bid of many banks to meet the N25 billion minimum share capital requirement before December 31 2005 imposed by the Central Bank of Nigeria, the need for this innovation cannot be over-emphasized.
According to a recent newspaper report, in a move to adhere to the German government's quest for transparency, one of the country's leading information technology giants, Siemens has agreed to reveal the pay of its executives for the first time. The company in a statement said the pay levels of its top executives would henceforth be published. Siemens' Head of communications, Mr. Eberhard Posner confirmed a report in 'Der Spiegel' news magazine that the company had taken the decision to make known the earnings of its 12 leading executives. Their earnings will be revealed in the printed annual report of the business year. According to "Spiegel" outgoing Chief Executive Officer, Henrich Von Pierer and the 11 other members of the Siemens board earned a total of 31.6 million Euros ($40.9 Million US Dollars) including bonuses and share options in 2003.
It may be recalled that a voluntary corporate governance code demanding more transparency on directors pay and perks has been in effect in Germany since early 2002. But some two-thirds of the top 30 companies listed in the blue-chip DAX share index still keep executive pay a secret. The government has warned that unless companies publish details on executive pay packages in their annual reports, it will pass a Law in 2005 enforcing transparency. Under German law, companies are only required to say how much their management board as a whole is paid. The debate on management pay was fuelled by multi-million bonuses deals to executives in the takeover in 2000 of the former German industrial giant Mannesmann by Mobile phones operator Vodafone.
Here in Nigeria, the need for transparency in executive pay and allowances is long over-due and we cannot escape from the dynamism of a global village. If we agree that shareholders of a publicly quoted company are the owners of the company, then it stands to reason that they should know how the top management of their company are being remunerated. This would enable them compare same with their performance. In the past a lot of these non-performing executives had continued to enjoy fat salaries, allowances and luxury overseas trips and holidays (with members of their families and sometimes girlfriends) while dividends and bonuses were denied shareholders on the pretext that, "the operating environment was harsh for the year ended".
While we welcome some of the innovations which SEC and NSE have introduced over the years like the automated Central Securities Clearing Systems (CSCS), we must admit that considering the sophisticated and somewhat technical nature of investing in a publicly quoted company, it is important for some level of transparency to be introduced in the corporate governance of these companies to safeguard these investments. Besides, such transparency would encourage new investors who are skeptical about buying stocks to participate in the process and deepen the all share index of the Nigeria stock exchange.
Only a few days ago, the Security and Exchange Commission warned that some banks who had offered their shares to the investing public were not disclosing all the information in terms of assets and liabilities to enable investors make an informed decision. It warned that it would be forced to sanction them if they refuse to retrace their steps. Also the Central Bank Governor alerted the public that some banks were engaging in round tripping with foreign exchange in their desperate bid to meet up with the N25 billion capital base. In this type of milieu, transparency must be the watchword.
Further, we must bear in mind that in the past four years, we as a country have had the dubious honour of being classified at the top echelon of the corruption perception index of Transparency International. Certainly, it would be in the interest of all stakeholders if this new policy which is making waves around the world is adopted as foreign investors would be encouraged by such a development.
Finally, directors of companies and indeed the top management are in some sort of fiduciary relationship with the shareholders. The shareholders having entrusted their funds to them and being absent from the day to day running of the companies expect full disclosure of all the companies financial activities and standing. What better way can they do this than to start with themselves by disclosing their remuneration so that we do not have a situation like we say in local parlance where, "Monkey dey work, Baboon dey chop". The ball is in the court of the Nigerian Stock Exchange and the Securities and Exchange Commission.
- Njoku is a legal practitioner in Lagos
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