Shareholders in the dark as listed firms conceal pay

Money Markets

CMA’s acting CEO Paul Muthaura: Due to privacy issues, disclosure will be aggregated in two blocks without a breakdown of the individual members. PHOTO | FILE 

By GEORGE NGIGI

In Summary

• Efforts by the Capital Markets Authority (CMA) to shed light on executive pay by standardising the disclosure requirements in line with international best practices have been blocked by the powerful corporate lobbyists.
• The lobbyists argue that such action would amount to invasion of their privacy and pose security risks.
• Proponents of clear disclosures have argued that shareholders need to make sure that the executive pay is in line with companies’ financial performance and in turn the reward to shareholders.

Most shareholders of Kenya’s listed companies have no idea what their chief executives earn, thanks to the lack of a standard template for disclosures of material investor information.

Efforts by the Capital Markets Authority (CMA) to shed light on executive pay by standardising the disclosure requirements in line with international best practices have been blocked by the powerful corporate lobbyists who argue that such action would amount to invasion of their privacy and pose security risks.

A committee set up last year to steer the writing of new capital market regulations had recommended disclosure of the pay arguing that “according to good practice, shareholders should have the right to at least give an opinion on board and executive remuneration”.

However, the recommendation was dropped following stakeholders’ argument that “disclosure of the structure of board remuneration is too onerous”.

READ: CMA’s proposals on executive pay disclosure diluted

Proponents of clear disclosures have argued that shareholders need to make sure that the executive pay is in line with companies’ financial performance and in turn the reward to shareholders.

The proposed disclosure was to include basic pay and any share options and other forms of executive compensation that had to be made during the course of the financial year.

Some companies, such as the soon-to-be listed Nairobi Securities Exchange, Uchumi Supermarket and Pan Africa Holdings disclose the pay for their chief executives, while most others lump non-executive and executive directors’ pay together.

“Due to privacy issues and security of individual remuneration, disclosure will be aggregated in two blocks without a breakdown of the individual members,” said the CMA’s acting CEO Paul Muthaura in a recent interview.

This sanctioned the lumping together of remuneration of non-executive directors, while that of executive directors is consolidated and reported as one figure in the company’s annual report.

In well-choreographed annual board meetings, shareholders cede their right to set board compensation and executive pay to the board of directors as a matter of course.