Saturday, August 07, 2021 / 07:00 AM / By Proshare Research / Header Image Credit: EcoGraphics
The Many Sides of CEO Compensation - Selected Sectoral Analysis of Executive Rewards
"I do not like what is going on with executive compensation" - Warren Buffet.
The year 2020 was a year like no other, summing it into one word would prove difficult. Although COVID-19 started at the tail end of 2019, the level of its impact on businesses and economic activities was not expected. The annual resolution of most companies for 2020 in terms of earnings and director's pay did not factor in the severe impact of COVID-19. This can be seen in situations where the remuneration of the highest-paid executive grew Y-o-Y while we see a significant decline in earnings of the company.
Accessing CEO compensation is an art, interpreting the numbers is not straightforward. Making sense of these numbers to assess how companies pay their top brass is not easy. Companies adopt different guidelines in determining the top manager's pay, the focus of these guidelines addresses mainly questions of how much to pay, and how to pay, this is in terms of bonuses or stock options.
The risk and reward principle is the idea that the top executive's performance provides value to the organization, that is, the CEO's compensation reflects the performance of the company. This risk is particularly acute when incentive programs for executives focus on short-term goals without necessarily promoting the long-term prospects of the company. For the companies practicing this principle, the CEO's compensation should move in the same direction as the company's earnings - either a rise or a fall.
Annual bonus is another principle considered when setting CEO pay. An annual bonus that varies with performance is ideal. Executives who know they will be rewarded for performance tend to perform higher because they have an incentive to work hard. The bonus may be tied to some short-term goal and could be based on some performance outcomes such as earnings growth, return on equity, or appreciation of the share price.
While base salary and benefits could be competitive, this depends on several factors, for instance, the sector in which the company operates, incentives are the most likely drivers of boasting CEO performance. A stock option is a form of incentive in attracting and keeping executives, it is a part of management's executive compensation - especially where the business is not yet profitable and/or cash flow is constrained. Another form of incentive offered to executives is profit sharing, here payment is tied to company profits (see illustration 12 below).
Illustration 12: CEO Compensation: Cutting the Revenue Pie
Financial Services Sector
In 2020, most banks recorded an increase in profit before tax although marginally, however, that was not the case for the remuneration of the highest-paid director. Most of the remuneration of the highest-paid director of these banks was flat on a year-on-year (Y-o-Y) basis.
Looking at just basic remuneration excluding dividends earned by the executives, the top three highest-paid executives in the banking sector in 2020 were Segun Agbaje of GT Bank, Ebenezer Onyeagwu of Zenith Bank, and Emeka Okonokowo of Union Bank of Nigeria.
Access bank's highest-paid director's basic remuneration had the highest Y-o-Y percentage change amongst the banks, it rose Y-o-Y by +40.91% to N120.00m in 2020 while the bank's PBT had a lower percentage growth of +12.51%.
For Polaris Bank (unlisted), the Y-o-Y movement remuneration of the highest-paid director was in tangent with the movement of PBT. The remuneration of the CEO declined by -22.62% which was the highest percentage decline amongst the banks under review while PBT fell Y-o-Y by -18.76% (see table 1 below).
Table 1: Base Remuneration of Highest-Paid Executives in The Banking Sector
Contrary to the ranking of base salaries of highest-paid executives in the banking sector, we also look at not just the remuneration but also the dividend earned of these executives.
In 2020, Herbert Wigwe of Access Bank was the highest-paid director in the banking sector earning over N1bn in dividends. According to data available, most of the highest-paid executives in the banking sector held both direct and indirect shares in their banks. Polaris and Unity Bank CEOs earned just base remuneration in 2020 with zero shares held in their respective banks, according to the data available.
The dividend per share (DPS) was a major factor in determining the dividend earned by the executives. Although Access bank did not pay the highest DPS, the CEO held the highest number of shares in the sector making him the highest-paid executive in the banking sector.
Ademola Adebisi of Wema bank held the least number of shares and was the lowest-paid executive in the sector, although the DPS paid by the bank was not the lowest in the sector (see table 2 below).
Table 2: Highest-Paid Executives in The Banking Sub-Sector (2020)
Half of the listed insurance companies recorded declines in PBT while the other half had Y-o-Y growth in PBT. In terms of executive compensation, very few insurance companies had Y-o-Y changes in their compensation.
The highest-paid director in the sub-sector in 2020 was Kunle Ahmed of Axa Mansard Insurance Plc, he was paid N89.98m in 2020 which was an increase of +15.29% from the previous year. The Company's PBT rose significantly Y-o-Y by +57.54%, following the value approach discussed in Proshare's CEO REMUNERATION 2020 Report.
Veritas Kapital Assurance had the highest Y-o-Y percentage growth in its PBT in 2020, it grew by +293.72% while the remuneration of the highest-paid executive remained flat at N20.0m 2020.
Sunu Assurances Nigeria Plc recorded the highest Y-o-Y percentage decline in PBT, PBT declined by -266.70%. Samuel Ogbodu the CEO of Sunu Assurances compensation declined significantly by -52.85% to N22.59m in 2020 (see table 3 below).
Most executives of the listed insurance companies on the NGX owned shares in these companies, however, none of the companies paid dividend in 2020. Therefore, only the basic compensation of these executives was analyzed in this section.
Table 3: Highest-Paid Executives in The Insurance Sub-Sector (2020)
Oil and Gas Sector
Excluding Oando Plc whose result has not been updated for the past year, Seplat and Total Nigeria made the list of highest-paid executives in the oil and gas sector (O&G) in terms of basic remuneration the executives received.
Austin Avuru of Seplat Energy earned N679.00m in 2020 which included his 2019 bonus, making him the highest earner in the O&G sector. His base salary in 2020 grew by +10.00% against what he earned in 2019, even though, the PBT of the company declined significantly by -132.15% from N89.9bn in 2019 to a loss of N28.9bn in 2020. Seplat recorded the highest Y-o-Y declined in PBT in the O&G sector.
Total Nigeria's highest-paid executive Imrane Barry was the second-highest-paid executive in the sector, he earned N214.51m in basic salary from N163.42m in 2019 which is a +31.26% Y-o-Y rise. Total Nigeria's executive remuneration recorded the highest Y-o-Y percentage growth amongst other executives in the O&G sector while its PBT declined marginally by -5.26% in 2020.
Eterna oil had the highest Y-o-Y percentage growth in PBT, it grew remarkably by +391.88% to N548.15m in 2020, however, the basic remuneration of the highest-paid executive remained flat in 2020, Mahmud Tukur earned N80.75m.
Table 4: Base Remuneration of Highest-Paid Executives in the O&G Sector
One major finding in this category was the gap in earnings between Austin Avuru and the second-highest earner in the sector. This was propelled by the number of units of shares held by Avuru and the amount of dividend paid by Seplat.
The ranking is slightly different when the dividend earned by these executives is included. Avuru of Seplat still maintained its position as the highest earner in the sector in this category. Austin Auru earned N2.47bn in dividend in 2020 and a total of N3.14bn in total earned as stated in the financial accounts of the company. Layi Fatona of Niger Delta Exploration and Production (NDEP) was the next top earner in the O&G sector, earning N270.33m including dividends earned in 2020. There was no record in Total Nigeria's financial statement of Imrane Barry owning/holding shares, making him the third-highest earner in the industry.
For Ardova and Oando Plc, there was no data available for the earnings of the highest-paid director in 2020 (see table 5 below).
Table 5: Highest-Paid Executives in the O&G Sector (2020)
For Telcos and IT service providers, Ferdinand Moolman maintained the highest-paid executive in terms of basic remuneration in 2020. Although this was a Y-o-Y decline of -3.23% from 2019 to N567.00m in 2020. Raghunath Mandava, the highest-paid executive in Airtel Africa was the second-highest earner amongst the listed companies in the sector, he earned N347.19m as a base salary in 2020, which grew by +17.13% Y-o-Y. The basic salary of Adewale Adeyipo of CWG Plc remained flat for the period, earning N47.24m in 2020 (see table 6 below).
Table 6: Base Remuneration of Highest-Paid Executives in The ICT Sector
Raghunath Mandava was the highest-paid executive in the industry as bonuses and dividend earned was added to the executive's earnings. He earned N1.28bn in total in 2019/2020 which is +38.46% growth from the previous year. Moolman did not own or hold any shares in MTN Nigeria, therefore making him the second-highest executive in the industry, which was the same as Adewale Adeyipo (see table 7 below).
Table 7: Highest-Paid Executives in The ICT Sector (2020)
Only a few highest-paid executives in the consumer goods sector held/owned shares in their companies. Therefore, the ranking of the highest-paid executive both in terms of base salary and total compensation including dividends earned by these executives was the same.
Oyeyimika Adeboye of Cadbury Nigeria owned/held 54,000 units of shares, the company paid N0.18k in dividend per share (DPS) in 2020, making Oyeyimika earn N9,720 in dividend. Taiwo Adeniyi of Vitafoam Nigeria held/owned 864,000 units of shares, the company paid N0.70k in DPS, Taiwo earned N604,800 in dividends. Flour Mills of Nigeria's highest-paid executive, Paul Gbededo held/owned 2.72m units of shares, the company paid N1.40k in DPS, he earned N3.81m in dividends.
Jordi Bel of Nigerian Breweries was the highest-paid executive amongst listed companies on the NGX under the consumer goods sector in 2020. He earned N379.39m which is a +40.00% Y-o-Y increase. This was a different narrative from 2019, Nigerian Breweries' highest-paid executive was the second-highest executive in the sector. Baker Magunda was the second-highest earner in the sector, his remuneration also grew Y-o-Y by +32.12% to N255.00m from N193m in 2019. Unilever Nigeria's highest-paid executive Carl Cruz was the third earner in the industry, which is a -19.01% Y-o-Y decline from N302.52m earned by his predecessor Yaw Nsarkoh in 2019.
Gert Kriek, Georgios Polymenakos, and Chimaraoke Ekpe were the least earners in the sector in 2020 while data was not available for Olanrewaju Bamidele and Paul Farrer of Honeywell Flour Mills and Nascon Allied Industries (see table 8 below).
Table 8: Highest-Paid Executives in The Consumer Goods Sector (2020)
The narrative of a few highest-paid executives holding/owning shares in their companies was also seen in the industrial sector, while several companies in the sector did not have data on the compensation of the highest-paid executive.
Yusuf Binji of Bua Cement Plc held/owned 7,093 units of shares, the company paid a DPS of N2.067k making Binji earned N14,661 in dividend according to the data provided in the financials. Although Onajite Okoloko of Notore Chemical held/owned 1.24bn units of shares, the company declared no dividend in 2020. For the case of Lafarge Africa, Khaled El Dokani received a bonus of N113.68bn in 2020.
Michel Puchercos of Dangote Cement was the highest earner in the industrial sector in 2020, he earned N448.00m which rose Y-o-Y by +311.01% from the earnings of the former CEO Joseph Makoju. El Dokani was the second-highest-paid executive in the sector, he earned a total of N334.89m, his base salary was N221.22m which is a decline of -18.56% from N271.65m earned by the former CEO Michel Pucheros-now a CEO in Dangote Cement (see table 9 below).
Table 9: Highest-Paid Executives in The Industrial Goods Sector (2020)
UAC Nigeria's highest-paid executive led the charts amongst companies under NGX Conglomerate. He earned N216.06m in 2020 which is +69.34% higher than N127.59m earned by his predecessor Abdul Akhor Bello in 2019. He earned N335.32m in dividends making a total of N551.37m in his total compensation in 2020 according to available data. Owen Omogiafo of TransCorp was the second-highest executive amongst listed conglomerates, earning N90.76m including dividends earned in 2020 while Christopher Ezeh of John Holt earned the least according to available data (see table 10 below).
Table 10: Highest-Paid Executives in Conglomerates (2020)
Construction & Real Estate
There is no record of the highest-paid executives in the construction & real estate sector listed on the NGX owning/holding shares in their respective companies. Lars Richter of Julius Berger Nigeria Plc was the highest-paid executive in the sector with N316.64m as compensation in 2020, his remuneration grew Y-o-Y by +45.87%. Deborah Nicol-Omeruah of UPDC was the second-highest earner in the sector, she earned N29.36m up by +49.64% in 2019 (see table 11 below).
Table 11: Highest-Paid Executives in Construction & Real Estate (2020)
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