Nigerian Corporate Executive Pay Revisited: The Need For A Shave

Proshare

Tuesday, August 27, 2019 5.50PM / Teslim Shitta-Bey, Managing Editor/ Header Image Credit: Proshare NG

 

Proshare Nigeria recently (see Proshare Confidential CEO Remuneration: Making Sense of The Numbers For Listed Companies In Nigeria) did a deep dive into corporate executive pay in Nigeria in 2018 and discovered the following facts:

 

  • Executive pay of the bosses of Nigeria's top ten listed companies on the Nigerian Stock Exchange (NSE) have had little to do with either earnings performance or return on equity (ROE). Indeed, for some of these companies a fall in profit has been rewarded by a rise in the chief executive's (CEO's) remuneration.

  • Take Guinness Nigeria Plc for example, the CEO's pay packet rose much faster than revenue leading to a situation where the company's Revenue to CEO ratio has been sliding steadily over the last four years (see chart 1 below). The ratio fell from 2,194.4 in 2015 to 677.0 in 2017 and 310.0 last year, clearly showing that Guinness's CEO was having a rare bonus of a salary rise despite flattening (and even dipping) revenue.

 

Chart 1  Revenue/Highest Paid Director  2015-2018 ('000)

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Source: Guinness Nigeria Plc Audited Accounts

 

Corporate earnings before tax (PBT) to CEO remuneration fared no better. As CEO pay glided upwards pre-tax earnings slid downwards with a loss actually posted in 2016 (see Chart 2 below) 

 

 

Chart 2  PBT/Highest Paid Director  2015-2018 ('000)


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Source: Guinness Nigeria Plc Audited Accounts


  • CEO pay for some companies have tended to rise as overall staff costs have fallen, especially between 2017 and 2018, when C-suite executives applied Chainsaws to overall staff costs despite their own incomes drifting upwards. In writing Proshare's CEO Remuneration report 2019, some companies explained the extenuating circumstances that justified the trend; for example, Lafarge Africa said that the reason for the milder staff cost growth (12%) in 2018 relative to growth of its chief executive's pay (21%) was the sell-off of its South Africa operations which pulled operating expenses down as staff costs witnessed slower growth, but the full impact on staff cost of the sell-off of its South African operations may be seen more meaningfully in 2019 (see chart 3 below for 2016-2018 numbers). 


Chart 3 Lafarge Africa Plc Staff Cost (N’b) Vs CEO Remuneration (N'm) 2016-2018

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Source: Lafarge Africa Plc Audited Annual Accounts


In the banking sector GT Bank in 2018 saw its CEO's remuneration pull well ahead of the growth in the remuneration of other staffers, especially between 2017 and 2018 when overall staff cost actually declined but compensation of its managing director went up (see chart 3 below).  

 

 

Chart 4 GT Bank Staff Cost (N’b) Vs CEO Remuneration (N’m) 2015-2018                  


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Source: GT Bank Audited Annual Accounts


In the case of Seplat, a major indigenous Oil & Gas company, chief executive remuneration has glided up since 2015, with a 24.2% rise between 2015 and 2016 and a continuation of the upward norm between 2016 and 2017 2017, when CEO pay rose by 17.5% (see chart 4 below). Seplat appears to have taken a keen interest in rewarding both its managing director and Chairman handsomely over the last four (4) years.

 


Chart 5  Seplat Staff Cost (N’b) Vs CEO Remuneration (N'm) 2015-2018

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Source: Seplat Plc Audited Accounts

 

 

Trimming the Fat

 

As economic challenges in Nigeria fester (inflation at 11.08%, GDP growth at 2.01% and unemployment at 23.01%), the need to reduce operating cost becomes increasingly compelling. Indeed, towards this end a growing number of companies are looking for ways to either scale down operations to defend profitability margins or simply enter new lines of businesses entirely. For example, the Dangote Group sold off its Flour business to the Olams Group and has subsequently put a pause on its tomato farming activities and its foray into rice planting and milling. Other companies have equally revised their business plans to accommodate the realities of the emerging business outlook for 2019 and 2020.

 

Trimming costs has been a major strategic imperative for corporate survival, especially where demand pull pressures are less important than cost push factors.  It is within this context that the growing salaries of CEOs on the NSE have raised eye brows.

 

Illustration 1 Top Ten Highest Paid CEOs In Nigeria 2018


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Views From Abroad

A recent study by the Financial Times of London, observed that FTSE 100 CEOs still earn 117 times what the average UK worker makes in a year, despite a gradual tumble in the pay of top executives.

Analysis by CIPD, the professional association of Human Resource (HR) workers, and remuneration think tank, the High Pay Centre, found that average pay for FTSE 100 chief execs slumped 13% in 2018 to Euro 3.4m. The findings mirror conclusions drawn by a similar study conducted by International Accounting firm, Deloitte.

Despite this fall, however, the remuneration of the FTSE 100 bosses was still 117 times that of the average British worker with a median annual salary of Euro 26,574.

In some instances, CEOs are paid over 100 times the average salary of their employees - and in a particular case almost 1,000 times more than the median pay of employees of the company. In a 2019 FT article Peter Cheese, chief executive of CIPD noted that, 'The gulf between the pay at the top and the bottom ends of companies is slightly smaller this year but it's still unacceptably wide and undermines public trust in business'. Cheese goes on to point out that, 'We must question if CEOs are overly focused on financial measures and are being incentivised to keep share prices high, rather than focusing on the long-term health of their business'.

The FTSE 100 saw 43 of its CEOs enjoy pay increases in 2018 with Shell CEO Ben van Beurden grasping the highest increase. The take home pay of the Oil boss soared by oil by 128% to Euro 17.7m. Eight tenth of Shell's boss's pay packet was made up of performance-based pay, which to some extent, explained the large variation in compensation.

According to the US Economic Policy Institute, "Pay packages for average CEOs were 262 times higher than the average worker's pay in 2005, up from 71 times in 1989 and 24 times in 1965."

 "In 2007, CEOs in the S&P 500, averaged $10.5 million annually, 344 times the pay of typical American workers. This was a drop in ratio from the year 2000 when they averaged 525 times the average pay."

The alignment of corporate executive pay with corporate financial performance is therefore not a problem of any one particular country or continent, but is a theme that pervades the global business community. But with increased economic nationalism, shrinking international trade and a looming recession in the wings, perhaps the best time for a review of the templates for chief executive remuneration is now. 

 

Shareholder's Weakening Arms

Shareholders influence over Board action used to be strong during the years the late Mr. Akintunde Asalu was President of Nigeria’s premier shareholder's association. Since the Asalu days, a few other associations have emerged, but the collective impact of these associations have been tame. The less powerful corporate shareholders are, the less transparency and internal control shareholders expect to see. The more vocal corporate shareholder lobbyists are in influencing Board decisions the more integrity there is in the running of businesses.

The best combination of shareholder and Board power is where both are strong. The strength of both corporate parties ensures that management is effective and efficient and return on equity (ROE) is high and sustained (see illustration 2 below).


Illustration 2 Shareholders Power Matrix

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Weak shareholders allow Boards to become complacent; this in part explains why poor performing companies tend to delist from the Exchange as soon as they realize that they may be on the path to recovery, hard-pressed Boards do not want their affairs on the pages of newspapers or online media and opt to keep their operations beyond prying public eyes. For example, the NSE saw one company list in 2018 but four companies delisted in the same year; by June 2019 only two companies were listed (i.e. MTNN and SKYAVN ) while another three companies again decided to delist at our cut of date of June 2019 (see tables below).


Table 1 New Listing in 2018

New Listing in 2018

Company

Amounts/Units Listed

Listing Price

Date Listed

NOTORE

1,612,066,200

 N62.5

2-Aug-18

Source: NSE, www.proshareng.com/market

 

Table 2 Delisting in 2018

Delisting in  2018

Company

Date Delisted

Reason for Delisting

 Seven-Up Bottling Company Plc

5-Mar-18

Voluntary

African Paints Nigeria Plc

6-Apr-18

Regulatory: NSE

Afrik Pharmaceuticals Plc

6-Apr-18

Regulatory: NSE

Paints and Coatings Manufacturing Nigeria Plc 

17-Aug-18

Voluntary â€‹

Source: NSE, www.proshareng.com/market

 

Table 3 New Listing in 2019

New Listing in 2019

Company

Amounts/Units Listed

Listing Price

Date Listed

SKYAVN

1,353,580,000

N4.65

23-Apr-19

MTNN

20,354,513,050

N90.00

16-May-19

Source: NSE, www.proshareng.com/market

 





Table 4 Delisting in 2019                                                                                                                                 

Delisting in  2019

Company

Date Delisted

Reason for Delisting

Great Nigeria Insurance Plc

25-Jan-19

Voluntary 

Diamond Bank

1-Apr-19

Merged with Access Bank

Newrest ASL Nigeria Plc

13-May-19

Voluntary 

Source: NSE, www.proshareng.com/market

 

 

Going Back To Basics

Chief executive remuneration for corporate Nigeria has recently become a sore point with analysts and shareholders alike, but to get CEOs pay in relative balance with performance, shareholders need to be more attentive to business performance and more aggressive in evaluating the marginal contribution of corporate CEOs to marginal growth in businesses, Particularly ROEs, ROAs and dividend yields. If companies are to remain 'Catholic’. in management and compensation, corporate governance must return to Eden where return and reward move in a choreographed Spanish Tango.


Proshare Nigeria Pvt. Ltd.


Related News

1.       Proshare Confidential CEO Remuneration: Making Sense of The Numbers For Listed Companies In Nigeria - July 2019

2.      Agile or Irrelevant- Redefining Resilience –2019 Nigeria CEO Outlook, KPMG Nigeria- June 2019

3.      Disclosure of Remuneration-A Hot Topic, Deloitte- June 2014


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 Related News on Companies 2018 Audited Results

1. MTNN Declares N145.68bln PAT in 2018 Audited Results,(SP:N136.00k)

2. OANDO Declares N28.79bn PAT in 2018 Audited Results (SP:N5.65k)

3. SEPLAT Declares N44.87 billion PAT in 2018 Audited Results; Proposes $0.05 Final

Dividend

4. GUINNESS Declares N6.72bn PAT in Q4 2018 Results,(SP:N90.00k)

5. Dangote Cement Declares N390.33bn PAT in 2018 Audited Results; Proposes N16.00k

Final Dividend

6. GUARANTY Declares N184.64bn PAT in 2018 Audited Results; Proposes N2.45k Final

Dividend

7. UNILEVER declares N10.55bn PAT in 2018 Audited Result; Proposes N1.50K Final

Dividend

8. JBERGER Declares N6.10 billion PAT in 2018 Audited Result, Proposes N2.00K Final

Dividend

9. Lafarge Africa Releases Q1 2019 and Q4 2018 Results; Declares N3.15bn PAT in

Q1,(SP:N9.55k)

10. NESTLE Declares N43.01 bn PAT in 2018 Audited Results; Proposes N38.50k Final

Dividend

11. CADBURY Declares N823.08m profit in 2018 Audited Results,Proposes 25 Kobo

Dividend

12. UBA Declares N78.6bn PAT in 2018 Audited Results,Proposes N0.65k Final Dividend

Per Share

13. UBN Declares N18.09 billion PAT in 2018 Audited Results; Grows PAT by

39.1%(SP:N6.65k)

 

14. TOTAL declares N7.96billion PAT in 2018 Audited result; Proposes N14.00K Final

Dividend

15. NB Declares N19.44bn PAT in Q4 2018 Results; Proposes N1.83k per share Final

Dividend(SP:N83.00k)

16. ACCESS Declares N94.98bn PAT in Q4 2018 Results, Proposes N0.25k Final

Dividend

17. FBNH Declares N59.74 bn PAT in 2018 Audited Result,(SP:N7.80k)

18. Zenith Bank Declares N193.15bn in 2018 Audited Results; Proposes N2.50k Final

Dividend

19. FO Declares N361mln PAT in Q4 2018 Result,(SP:N24.95k)

20. OKOMUOIL Declares N8.50bn PAT in 2018 Audited Results, Proposes N3.00k Per

share Dividend

21. UACN Declare N9.59 bln loss in 2018 Audited Result; Proposes N0.64K Final

Dividend

22. LIVESTOCK Declares N620.31m loss in 2018 Audited Result,(SP:N0.63k)

23. CWG Declares N1.14bn loss in 2018 Audited Result,(SP:N2.54k)

24. GLAXOSMITH declares N617.62 mln PAT in 2018 Audited Result; Proposes 50 Kobo

Final Dividend

25. NAHCO Declares N196.79m PAT in 2018 Audited Result; Proposes N0.25K Final

Dividend

26. FIDSON Declares N97.45 mln loss in 2018 Audited Results; Proposes N0.15K Final

Dividend

27. COURTVILLE Declares N78.44m PAT in 2018 Audited Result,(SP:N0.20k)

 

 

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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