COVID-19 and The New Compensation Normal

People
1987 VIEWS
Proshare - Facebook Proshare - Twitter Proshare - Linked In Proshare - WhatsApp
Proshare

Thursday, August 06, 2020 / 05:40 AM / By Proshare Research / Header Image Credit: EcoGraphics


 Proshare Nigeria Pvt. Ltd.


As the global health pandemic dubbed COVID-19 rages, corporate executives remain in a quandary as to the best strategies to adopt to protect gross earnings, profits, and operating cash flows. Businesses have been viciously hit by a slowdown in demand and disruptions to vertical supply chain linkages. The poorer revenue outlook for most corporations has meant that executive compensation has increasingly come under stakeholder scrutiny. Corporations from Lagos to Kano, Port-Harcourt to Maiduguri, and Enugu to Sokoto have had to review policies related to the compensation of their top C-suite executives at a time of slower growth. Indeed, across Europe, America, and Asia, the CEO pay packet has begun to shed weight. 

 

Illustration 5: CEOs Foregoing Salaries to Support Corporate Strategy

Proshare Nigeria Pvt. Ltd.

 

Does this mean that corporate executive pay will continue to stumble? Not necessarily. A lot will depend on the industry in which the company operates and the relative market share of the firm in consideration. CEOs in industries like telecommunications, fintech, healthcare, pharmaceuticals, and digital entertainment may not see a large diminution in sales and so CEOs in these industries may weather the storm of a slide in general executive pay.

 

Other CEOs may not be so lucky, to be sure, executives in industries such as aviation, hospitality, oil & gas, logistics, e-commerce, and power who may see sharp revenue declines and hence the need to cut operating costs (OPEX) and capital expenditure (CAPEX). With fall in both revenues and expenditures in the sundry sectors, CEOs in these businesses will likely have to take a shave in remuneration. 

    

Instructively even domestic financial institutions will likely record a decline in their gross earnings as a result of large exposures to the oil & gas and power sectors which constitute a major part of their lending portfolio. Supply chain disruptions caused by the COVID-19 pandemic will likely be harmful to the consumer goods sector, especially import-dependent companies.

 

The truth about the new normal of executive remuneration is that there is no normal. The remuneration of executives will increasingly depend on talent, corporate performance, and hubris. But not necessarily in that order.


 Proshare Nigeria Pvt. Ltd.


The Ariely Perspective

 

In his recent book titled "The Upside of Irrationality", behaviour economist Dan Ariely carried out a series of experiments to determine whether C-suite executives are compensated for operational value or perceived strategic relevance or simply position and power. He also wanted to know whether pay rises were major drivers of improved personal performance. 

 

Ariely observed that "paying people high bonuses can result in high performance when it comes to simple mechanical tasks, but the opposite can happen when you ask them to use their brains-which is usually what companies try to do when they pay executives very high bonuses. If senior Vice presidents were paid to lay bricks, motivating them through high bonuses would make sense. But people who receive bonus-based incentives for thinking about mergers and acquisitions or Coming up with complicated financial instruments could be far less effective than we tend to think-and there may even be negative consequences to really large bonuses."


The behavioural economist further noted that "using money to motivate people can be a double-edged sword. For tasks that require cognitive ability, low to moderate performance-based incentives can help. But when the incentive level is very high, it can command too much attention and thereby distract the person's mind with thoughts about the reward. This can create stress and ultimately reduce the level of performance."

 

C-suite pay needs to be streamlined with measurable performance indices. Top pay should reflect top earnings but where earnings decline executives must be prepared for an earnings shave.


 Proshare Nigeria Pvt. Ltd.


MTN Nigeria Communications Plc

 

The Telecoms sector would most likely record a counter-cyclically movement in response to a negative economic outlook of the Nigerian economy. MTN's profit margin has been above 20%, in Q1 2020 there was Y-0-Y increase in its profit before tax and gross earnings, however, there was a -6.72% decline in profit margin, this was as a result of an increase in operating expenses (Y-o-Y) (see Table 10).

 

Table 10: MTN's Profit Margin

Proshare Nigeria Pvt. Ltd.

 

MTN Nigeria is listed under the premium board on the NSE, the year-to-date performance of the premium board index stands at -0.18% which is significantly below +11.90% of the company's YTD date performance (as at 1st July 2020), (see Chart 99)

 

Chart 99: MTN Nigeria YTD Share Price Movement (as of 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research

 

Looking at the trend and Q1 2020 performance, the profit margin for FY2020 has been forecasted to be between +23% and +25%. The CEO remuneration is tied to the performance of the company, and the COVID-19 not having a significant impact on the financial position of the company. It has been forecasted that there would most likely be an increase in voice and data revenue as a result of the lockdown and movement restrictions. Therefore, CEO remuneration is also expected to increase or remain unchanged.


 Proshare Nigeria Pvt. Ltd.


Oando Plc

 

The oil and gas sector has been one of the hardest-hit sectors by the COVID-19 pandemic, the sector faces more disruptions to demand and supply chains, with the cut-in productions taking effects and prices being volatile. Although the oil and gas sector has faced so many economic challenges like the 2008 global financial crisis, many in the industry are optimistic that the oil and gas sector will be able to weather the market volatility, with full recovery and resurgence of oil demand being forecasted in 2021.

 

Oando Plc 2017 and 2018 full-year results show a profit margin a little bit above 4.0%. 2019 profit margin is also expected to be between 4.0% and 4.2% this is based on comparing the H1 2018 and H1 2019 results. However, for FY 2020, revenue is expected to decline as a result of challenging macroeconomic environment and market volatility caused by the COVID-19 pandemic (see Table 11).

 

Table 11: Oando's Profit Margin

Proshare Nigeria Pvt. Ltd.

 

The oil and gas sector YTD performance on the NSE recorded a decline of -24.94% which is below -37.50% the company's YTD performance (as of 1st July 2020) (see Chart 100).

 

Chart 100: Oando Plc YTD Share Price Movement (as of 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research

 

There is an assumption that the CEOs' remuneration is supposed to be tied to the performance of the company, however, that was not the case for Oando Plc, seeing remunerations are decided at the beginning of the year and the decision follows through whether the company's financial performance increases or declines at the end of the year.

 

The outlook for the oil and gas sector is still uncertain as a result of how choppy the oil price has been since the advent of the COVID-19 pandemic, however, once the outbreak is controlled and global oil demand rebounds, there is likely going to be a recovery of the oil market in the longer term. Against these backdrops, Oando's CEO salary is expected to decline slightly or remain unchanged.

 

Seplat Petroleum Development Company

 

Although Seplat's outlook for the year 2020 amidst the COVID-19 pandemic shows that the company hedged against low oil prices and a significant proportion of its revenue now comes from the gas which offers further protection from the oil price volatility, the revenues of the company are still at risk of the impact of the pandemic. This is so because, the global economic activities have been slowed down, especially China and India who hold the world's largest demand for oil and gas, therefore the decline in demand of gas and glut in the global supply of gas which has caused a reduction in the price of gas will also affect the revenues of companies like Seplat.

 

Table 12: Seplat Profit Margin

Proshare Nigeria Pvt. Ltd. 

 

Data shows that the remuneration for the highest-paid executive in Seplat isn't tied to the performance of the company, for instance, in 2019 profit margin increased by +21.40% while remuneration of the highest-paid executive declined by -8.90% (Y-0-Y). For 2020, the forecast for revenue is expected to decline even further as a result of the pandemic, hence, remuneration for the highest-paid executive is likely going to decline even further (see Table 12). The oil and gas sector YTD performance on the NSE recorded a decline of -24.94% which is lower than -35.45% recorded by SPDC (as of 1st July 2020), (see chart 101).

 

Chart 101: SPDC YTD Share Price Movement (as of 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research

 

 Proshare Nigeria Pvt. Ltd.


Guaranty Trust Bank

 

Financial institutions were also adversely affected by the COVID-19 pandemic for several reasons. Foreign exchange earnings are expected to see significant declines as domestic export has contracted due to supply chain disruptions, earnings from oil and gas have also declined and are expected to decline further. Generally, the NPL size of the bank is expected to grow larger, as businesses have been halted. The bank will also record a decline in the volume of transactions due to lockdowns and restrictions placed, although the bank is expected to record an increase in digital transactions as individuals will engage in more online transactions, however, will earnings from digital transactions cover other declines that the bank is expected to record?

 

Table 13: GTBank Profit Margin

Proshare Nigeria Pvt. Ltd.

 

In 2019, the profit margin increased by +7.34% while remuneration for the highest-paid executive increased by +4.05% (see Table 13). The YTD performance of the financial services sector on the NSE recorded a decline of -21.68% which is slightly lower than -23.97% of GTBank's YTD performance (as of 1st July 2020), (see chart 102).

 

Revenues are expected to decline for FY 2020; therefore, CEOs' remuneration is likely to decline slightly.

 

Chart 102: GT Bank YTD Share Price Movement (as of 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research


 Proshare Nigeria Pvt. Ltd.


Unilever Nigeria Plc

 

Fast-moving consumer goods (FMCG) are less dependent on discretionary spending, this reduces the risk exposure of the company to the impact of COVID-19. Many consumer goods are considered necessity products and thus do not react to contraction as well as other sectors. However, companies highly dependent on imports for its raw materials will be highly impacted by the pandemic as a result of the supply chain disruptions.

 

The share price movement of Unilever has been on a decline, the YTD performance stood at -30.45% which is above the -25.85% of the YTD performance of the consumer goods sector on the NSE (as at 1st July 2020) (see chart 103).

 

Chart 103: Unilever Nigeria YTD Share Price Movement (as of 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research

 

A profit margin of Q1 2020 of the company also shows a decline of -33.84% (Y-o-Y), remuneration for the highest-paid executive for 2019 also shows a decline of -8.33% (Y-o-Y) (see Table 14).

 

Table 14: Unilever Profit Margin

Proshare Nigeria Pvt. Ltd.

 

Overall, the financial position of the company has been declining, with the impact of the COVID-19, CEO's remuneration is expected to decline further.


 Proshare Nigeria Pvt. Ltd.


Lafarge Africa Plc

 

Border closures, restrictions on constructions, and other non-essential business activities caused by the outbreak of the virus will have a great impact on the construction and real estate sector. The performance of the construction and real estate sector shows a cyclical movement, that is, the performance of the economy reflects on the performance of the sector. However, some companies in the sector don't reflect the performance of the sector.

 

Lafarge Africa is under the industrial goods sector, and the YTD performance of the sector stands at +4.01% while Lafarge has a negative YTD performance of its share price stands -28.57% (as at 30 June 2020), (see chart 104).

 

Chart 104: Lafarge Africa YTD Share Price Movement (as of 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research

 

For Q1 2020 Lafarge recorded an increase of +86.22% in its profit margin (Y-o-Y) while remuneration for the highest-paid executive decline by -9.49% in 2019 (Y-o-Y) (see Table 15).

 

Table 15: Lafarge Africa Profit Margin

Proshare Nigeria Pvt. Ltd.


CEO's remuneration could likely decline as a result of the impact of the COVID-19 pandemic.

 

 Proshare Nigeria Pvt. Ltd.


Nestle Nigeria Plc

 

Disruptions in supply chains have affected the movement of goods amongst countries, especially companies that rely heavily on the import of raw materials and packaging materials. For Nestle Nigeria, agricultural inputs and packaging materials are sourced locally, however, revenues are still declining, this is the result of restrictions of movement between states and serial lockdowns which have slowed sales.

 

Chart 105: Nestle Nigeria YTD Share Price Movement (as of 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research

 

Year-to-Date (YTD) share price movement shows a decline of -14.50% which is above the sectorial performance of -25.49% (see Chart 105). The company also recorded a decline in its profit margin of -7.91% in Q1 2020 (Y-o-Y), the profit margin for FY 2019 recorded an increase of +11.59% Y-0-Y percentage change, while the remuneration of the highest-paid executive also increased by +3.61% in 2019 (Y-o-Y) (see Table 16).

 

The trend in the growth of CEO remuneration reflects also in the growth of the performance of the company. The profit margin of the company is expected to be between 20%-26%, therefore its CEO remuneration is expected to either decline slightly or remain unchanged.

 

Table 16: Nestle Nigeria Profit Margin

Proshare Nigeria Pvt. Ltd.

 

 

Julius Berger

 

The COVID-19 pandemic has forced businesses to rethink spending strategies to protect their liquidity, cash flows, and long-term sustainability. In an attempt to brace itself for the impending liquidity crunch, the company withdrew its previously announced final dividend payment of N2.75K per 50K share to N2.00K per 50K share for the year 2019.

 

Its profit margin declined by -4.57% for Q1 2020 Y-0-Y, while profit for 2019 also declined by -0.38% Y-0-Y. However, remuneration paid to the highest executive declined by -31.91% (see Table 17).

 

Table 17: Julius Berger Profit Margin

Proshare Nigeria Pvt. Ltd. 

 

The share price movement of Julius Berger showed a decline of -0.25% well below the sectorial performance of +4.01% (as of 1st July 2020), (see Chart 106).

 

Chart 106: Julius Berger YTD Share Price Movement (as at 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research


 Proshare Nigeria Pvt. Ltd.


Guinness Nigeria Plc

 

Lockdowns and restriction of non-essential activities have led to a tumble in revenues for beer manufacturers. Breweries are at risk of a major decline in production and revenues. Guinness Nigeria has also released a statement stating that a certain category of its assets that were generating suboptimal returns was going to be impaired, therefore, the profitability of Guinness may dip in 2020. The profit warning was a unique show of appropriate corporate governance and should be adopted by other companies to reduce the incidence of information asymmetry.

 

The YTD performance of the company showed a decline of -53.41% which was below the sectorial performance of -25.85% (as of 1st July 2020) (see Chart 107).

 

Chart 107: Guinness Nigeria YTD Share Price Movement (as at 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research

 

Profit margin declined by -96.45% in Q3 2019/2020 from +7.32% recorded in the corresponding quarter of the previous year. The company also recorded a decline of -22.30% in its profit margin for 2019 (Y-o-Y) (see Table 18).

 

Table 18: Guinness Nigeria Plc Profit Margin

Proshare Nigeria Pvt. Ltd.

 

With production and revenue expected to decline for FY 2019/2020 as a result of the impact of COVID-19 pandemic and asset impairments, remuneration to the highest paid executive is also expected to fall.


 Proshare Nigeria Pvt. Ltd.


Union Bank of Nigeria Plc

 

With a fall in the number of daily transactions, a decline in foreign exchange earnings, UBN is likely to see a rise in its non-performing loans (NPLs). This is as a result of a contraction in economic activities caused by the coronavirus pandemic and a fall in international oil prices. UBN is most likely to see a decline in gross earnings for 2020.

 

The year-to-date performance of the financial services sector saw a decline of -21.68% which was higher than the year-to-date performance of UBN which stands at -4.07% (as of 1st July 2020) (see chart 108).

 

Chart 108: Union Bank YTD Share Price Movement (as at 30th June 2020)

Proshare Nigeria Pvt. Ltd.

Source: NSE, Proshare Research

 

The bank recorded a slight decline of -0.62% in its profit margin for Q1 2020 (Y-o-Y), while a +20.13% increase was recorded for FY 2019 in its profit margin (Y-o-Y).  Remuneration for the highest-paid executive has remained flat for three consecutive years, for 2020, the remuneration will most likely remain unchanged or decline (see Table 19).

 

Table 19: Union Bank Profit Margin

Proshare Nigeria Pvt. Ltd.

 

Illustration 6: Understanding COVID-19 on CEOs Pay

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Downloadable Versions of 2020 Report (PDF)

1.      Executive Summary: CEO Remuneration 2020 Report - Paying the CEO in a Pandemic; The Unanswered Questions  July 30, 2020

2.     Full Report: CEO Remuneration 2020 Report - Paying the CEO in a Pandemic; The Unanswered Questions  July 30, 2020

 


Proshare Nigeria Pvt. Ltd.

 

Previous Year's Report and Links

1.          CEO Remuneration 2019 Report: Making Sense of the Numbers for Listed Companies in Nigeria  July 30, 2019

2.         Full Report: CEO Remuneration 2019 Report - Making Sense of the Numbers for Listed Companies in Nigeria   July 30, 2019

3.         All Quoted Companies IR Pages - Proshare MARKETS

 

 

Proshare Nigeria Pvt. Ltd.

 

Related News from CEO Remuneration 2020 Report

  1. The Upside of Rationality
  2. Nigeria's Top Ten Income Earning Executives
  3. The Many Sides of CEO Compensation
  4. Executive Pay and Theoretical Approaches
  5. Between 2019 and 2020: Understanding The New Realities of CEO Remuneration
  6. CEO Remuneration 2020 Report - Paying the CEO in a Pandemic; The Unanswered Questions

Proshare Nigeria Pvt. Ltd.

Related News

1.      Top 10 highest earning CEO's in Nigeria - Nairametrics - July 10, 2020

2. Tinubu, Avuru top list of highest paid CEOs of quoted Nigerian companies - BusinessDay - April 23, 2019

3.     Memo To AMCON: Nigerian Tax Payers are not Responsible for Repayment of Bad Debt

4.     Much Ado About the FIRS' 6% Stamp Duty on Leases

5.     An Unexpected Rise in the FAAC Payout in July 2020

6.     A Strong COVID-19 Response, and a Road to Recovery

7.     Unemployment in Today's Recession Compared to the Global Financial Crisis

8.     Teleworking is Not Working for the Poor, the Young, and the Women

9.     Coronanomics (1) - Understanding the Realities of an Impending Recession

10.  PepsiCo Elects Segun Agbaje To Board Of Directors

11.   DANGCEM Appoints Michel Puchercos As Group CEO; Joseph Makoju Retires

12.  Michel Puchercos Resigns As GMD Of Lafarge Africa Plc; Appoints Khaled Abdelaziz El Dokani

13.  Dangote Cement Plc Appoints Engr. Joseph Makoju as Managing Director

14.  Wale Tinubu named Young Global Leader

15.  ACCESS Notifies of Dealing in 0.73m Volume of Shares Worth N4.96m By Mr. Herbert Wigwe

16.  Adversity Teaches Us to Innovate - Jim Ovia, CON

17.  ETI Appoints Alain Nkontchou As Board Chairman

18.  FIDELITYBK Notifies of Board Changes; Appoints Mrs. Nneka Onyeali-Ikpe as CEO

19.  UNILEVER Announces the Resignation of Mr. Yaw Nsarkoh As Director

20. Emuwa resumes as Union Bank's boss on Thursday 

 

 Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP