THE remuneration of directors could become a topical issue in Zimbabwe due to the under-performance of most companies as management come under pressure from shareholders.
On the one hand, paying directors unattractive fees could lead to low engagement which may reduce the commitment of non-executive directors in driving the strategy of a business.
On the other hand, excessively rewarding them could attract the attention of other company stakeholders and lead to conflicts that may affect the company’s performance.
Executives interviewed by this newspaper said directors’ fees were driven by affordability and hence shareholders could not approve high fees if they felt the company was struggling.
But in Zimbabwe, resolutions on directors’ fees have easily passed at most shareholder meetings without much scrutiny, even if the fees appeared to be out of synch with the company’s performance or financial health.
In Zimbabwe, directors’ fees for Zimbabwe Stock Exchange-listed firms vary depending on the size of a company. Traditionally, directors meet quarterly unless there is an extra-ordinary issue to be attended to.
Companies with subsidiaries such as banking groups CBZ Holdings and FBC Holdings cannot be compared to smaller companies.
According to a report on non-executive directors’ practices and remuneration trends by PricewaterhouseCoopers (PwC) South Africa released last month, directors’ remunerations comparison should be determined by their market capitalisation if assessment was to be fair.
Reporting on the South African bourse, PwC said due to the vast disparity in market capitalisation among listed companies, where the bulk of the value is held by few companies, they were of the opinion that the very large companies should not be compared in the current categories of large, medium and small capitalisation.
The same, apparently, may be said of ZSE-listed firms.
Directors of CBZ Holdings got a combined US$1 010 402 during last year, while those at FBC Holdings got US$703 782 during the same period.
So attractive were the fees that every executive or director would want to sit on the boards of these companies. But they have to take into consideration that they have more work to do compared to companies without subsidiaries.
Directors are responsible for giving direction to a company’s management for the day-to-day business to ensure that it survives. They base their decisions on the company’s financial results, economic environment, meeting and feedback from management.
Under common law, directors have a duty to ensure that notices of a shareholders’ meeting and its accompaniment contain sufficient information to enable shareholders to make intelligent decisions with respect to the matters up for discussion.
Of the listed firms that held AGM’s last year, Innscor Africa had the third biggest pay cheque at US$509 205. National Tyre Service was fourth at US$402 693.
The average directors fees for listed companies is U$48 000, not a bad return for some of them who have multiple board sittings. The amount of fees the directors receive also depends on how big a company is.
The debate over board governance practices and the value of boards as an important part of large company management has been prominent in this part of the world as it is in Europe, America and Asia. Can these directors really be worth so much to the companies they govern?
According to some executives, domestic board fees were not high and the quantum of the fees needs to be correlated with the extent of time commitment required of the directors which, as a general rule, includes attendance, for several hours, of at least four board meetings per annum. It also includes attendance to at least one board committee’s meeting, approximately every six months.
The other listed companies such Fidelity Life Assurance approved director fees amounting to US$135 300; Turnall Holdings paid US$157 891; Zimplow gave its directors US$122 851); Dairibord Holdings rewarded its directors with a combined US$210 386; NamPark splurged US$232 215 on its board; and TSL paid out US$166 000).
OK Zimbabwe approved board fees amounting to US$105 000, while First Mutual Life sanctioned US$131 259 for its directors; Barclays Bank paid put US$150 000 and Ariston committed US$100 000 to its board of directors.
The directors’ duties also include detailed perusal of monthly management accounts, and of annual financial statements, and monthly management reports and also availability on a consultative basis as and when required by management.
Fees payable to or earned by directors are considered part of remuneration and therefore subject to employees’ tax if paid to a director of a company or paid to a chairman or member of any board of a statutory corporation from which the individual also receives other amounts constituting remuneration.
Other firms that approved their directors fees at shareholders’ meetings include the following: wine and spirit maker, Afdis (US$88 386); financial services form, Getbuck Financial Service (US$72 456); manufacturing, retail and clothing firm, Truworths (US$21 820); retail, distribution, and logistics firm, Axia Corporaton (US$7 040); agri-industrial company, Colcom Holdings (US$38 000); National Foods Limited US$60 060; starafricacorporation (US$87 200); CFI Holdings (US$84 581); NicozDiamond (US$89 260); Zimre Property Investments (US$82 000); Dawn Properties (US$68 250); Pearl Properties (US$70 528); Padenga Holdings (US$56 850); and BAT Zimbabwe (US$23 838).
Some shareholders have quietly been agitating for disclosure of directors’ qualifications to determine if they add any value to company boards. Apparently, some board members are simply appointed to glean information for shareholders whose interest they represent without making any meaningful contributions to the boards.
Although shareholders do not run companies, they can influence the board of directors and management through directors’ fees.
In one of his writings, Stephen Nyabadza, a commercial lawyer, said good corporate governance requires that the profiles of the directors seeking reappointment should be included in notices for shareholder meetings or in the alternative the profiles of such directors be included in the annual reports sent to members with a reference note made on the notice that the profiles of the directors are contained in the annual report.
“A cursory glance, at AGM notices published during the course of this year, shows that most companies do not state on their notices, the amount that was expended towards directors’ fees or auditors’ fees.Whilst, it can be argued that directors’ fees and auditors’ fees will be contained in the full financial statements, it is good practice to refer to the particular note on the financial statements which contains the directors’ fees or in the alternative to state on the notice how much these fees are,” he said.
Some executives said companies should disclose the remuneration of individual directors and the salaries of senior executives.
“The question that has to be answered is whether the director fees that are put up on AGM for appointment are a complete picture of what the directors actually earn. For example, if there are other non-monetary benefits that directors earn, are these being properly disclosed for the benefit of the knowledge of all shareholders? Shareholders are the ones who approve the company’s remuneration policy,” one executive said.