Tuesday, August 11, 2020 / 05:18 AM / By
Proshare Research / Header Image Credit: EcoGraphics
There has been an uptick in public concern over the nexus between
executive and productivity, analysts have found it increasingly difficult to
pair C-suite bonuses with executive value-addition. Behavioural economists
contend that paying CEOs and other corporate executive's large bonuses to
increase productivity may not necessarily bring the bacon home, as the link
between bonuses and white-collar productivity is at best tenuous. Indeed a few
corporate analysts have argued that large bonuses simply increase operating
costs.
Economist Dan Ariely as noted earlier has observed that paying people
high bonuses can result in high performance when it comes to simple physical
tasks, but the opposite could prove true when people are required to use their
brains-which is usually what companies try to do when they pay executives very
high bonuses. According to Ariely, if CEOs 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 people tend
to think and there may even be negative consequences to large executive
pay-outs.
The questions that arise in response to Ariely's argument include the
following;
To give context to Ariely's argument, he did not call for a scrapping of
executive bonuses, but he did note that the main concern with such bonuses were
questions arising from the ability of bonuses to increase productivity, the
returns on corporate equity and how appropriately compensated were lower to
middle-level staffers.
Business Mogul, Warren Buffet asserted that he is unlikely to invest in
a firm with low returns on equity and below-par staff pay. The question that
still arises is, what should determine executive bonuses? The answer is
difficult to decide but what is becoming clearer is that bonuses should not be
paid in anticipation or as an incentive for bringing out the best performances
from executives, instead bonuses should be paid as a reward for performances
that have already been achieved. Such bonuses can then be justified if the CEO
overtime increases shareholder's value or return on equity (RoE).
The
Boston Consulting Group's (BCG's) Growth-Share Matrix provides some insight
into the context of value creation of several listed local companies and their
executive's pay. For the Oil & Gas companies, for example, the real growth
rate is low and the share of the market wallet for upstream and downstream
activities is modest for both Seplat and Oando, this means cash flows are
neutral, earnings unstable and corporate strategy is generic which means that
prospects for overall corporate stability are borderline. Companies in the
Telecommunications sector have seen high real growth rate in both voice and
data revenues and their market share are also relatively high meaning that a
company like MTNN has seen high and stable earnings, neutral cash flow, and growth-oriented
capital expenditure. The increase in growth and significant market share
explains why MTNN's CEO can comfortably pull the highest remuneration of all
CEOs with companies listed on the NSE.
Illustration 13: The Boston Consulting
Groups (BIG's) Growth-Share Matrix
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
Previous Year's Report and Links
1.
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
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