adminKuthula Matshazi The Flip Side
THE salary cap of US$6 000 per month on salaries of chief executive officers (CEOs) of State-owned enterprises (SOEs) announced recently by the Minister of Finance, Patrick Chinamasa, is a necessary policy move. It will allow Government to temporarily prevent loss of taxpayers’ funds to the heads of the SOEs while an appropriate system of remuneration is being put in place.
Minister Chinamasa stated that the CEOs will be paid up to a maximum of US$6 000 per month in the interim, pending finalisation of a comprehensive salary structure by the Cabinet Committee on State Enterprises and Parastatals Development. Executives had devised a remuneration system which provided them taxable low salaries with high non-taxable allowances.
For instance, according to Minister Chinamasa, the ZBC CEO earned a taxable US$15 000 per month while receiving untaxed allowances of US$22 050 per month.
The decision of the Cabinet Committee is bound to generate strong reaction from the public. One side of the public wants the current US$6 000 maintained while the other believes this figure is too low and prejudices CEOs, and Government should let market forces determine the salary levels. The latter group also believes that capping salaries will lead to loss of top talent.
CEOs are not being prejudiced because they don’t have, after all, a justification, based on principles of sound corporate governance, to earn such obscene salaries that are a mismatch to organisational outcomes and individual performance. In fact, it is the taxpayer that was prejudiced because the CEOs failed to provide services, which people had actually paid for, such as electricity. People paid for electricity supply to Zesa Holdings, but spent days without electricity. When they failed to pay their electricity bills, many times, ZESA disconnected their electricity supply. Meanwhile, the ZESA CEO earns US$2 984 in taxed salary and US$14 942 in untaxed allowances.
Of course, there are issues that negatively affected the operations of SOEs, such as economic sanctions and deteriorating macroeconomic environment, but surely, those problems should also reflect in the remuneration structure. The pay structure should be adjusted relative to the struggling business operations.
The Conference Board of Canada, a research institution, carried out a research on executive compensation across Europe titled, “Executive Remuneration across Europe: A Handbook of Design, Disclosure and Enforcement Rules.”This study is relevant to Zimbabwe for two reasons. First, Zimbabwe aspires to have world-class policy standards, and second, the obscene salaries were within and, in some instances, way beyond what the CEOs of European SOEs earn.
According to the Conference Board research, the Swedish guidelines demand that the total remuneration to senior executives of State-owned companies shall be reasonable, competitive, with a set ceiling and appropriate for its purpose, and shall contribute to high ethical standards and a good corporate culture. The Governance Code requires that variable remuneration shall be linked to predetermined and measurable performance criteria aimed at promoting the company’s long-term value growth. The United Kingdom also has similar demands for SOEs. The codes stipulate that SOEs should hire persons with the quality to run the company successfully, but avoid paying unreasonable levels of remuneration. They further state that the salaries of executive directors should be structured so as to link rewards to corporate and individual performance. This system of executive compensation is in line with what Minister Chinamasa has suggested as a preferred way forward.
Minister Chinamasa’s move may likely lead to an exodus of many current senior managers to seek other opportunities. Some people think that this will cause Government to lose top talent. Indeed, there will be loss of corporate memory, which is important for any organisation. However, the loss of talent is exaggerated since the current CEOs were actually a drain on the taxpayer than anything else, because they provided horrible services.
It is true that some were highly qualified and committed to serving the country, but ended up taking advantage of weak oversight and archaic laws, and policies that regulate their employment. Others were simply not competent and under-qualified.
If the Government will cause the senior managers to leave for other opportunities by capping salaries, it makes no difference, because they will eventually leave, anyway. They are likely to be fired because their conduct bordered on bad corporate governance, which no responsible Government or even private sector would tolerate!
There are many well qualified and committed Zimbabweans who are currently waiting to occupy those positions and do a decent job for US$6 000 per month. The fact that at some point, the new managers will move on is not a new phenomenon. Employees move all the time and Government is constantly competing for top talent with the private and voluntary sectors.
Online Reporter