Pay for CEOs of Public Companies to be Tied to Performance

Chief Executive Officers whose companies have been performing dismally are headed for a possible pay cut as the new rule comes into force. The new rule now makes the amount earned by the executive of a company to be determined by the performance of the company. This implies that all executives of the companies that are listed at the Nairobi Security Exchange and which have issued profit warnings will soon have their pay cut.

The new rule known as the new corporate governance code was gazetted last Friday by Capital Markets Authority. According to Capital Markets Authority, the new rule takes effect immediately and calls for the CEO whose company is struggling to perform to have his salary cut. According to the new rule, all public companies have to integrate what is known as pay-for-performance formula for Chief Executive Officers as well as top board members in the company. This means that the top management will receive their remuneration according to the performance of the company. If the company performs dismally, the pay also becomes dismal.

In doing this, CMA believes that it will help in ensuring the maximization of the shareholders’ value. Among the top company that have been struggling to remain afloat are Kenya Airways and Uchumi Supermarkets. Both companies are now relying only on the goodwill of their creditors to perform but if the creditors decide to take back what belongs to them, then that will be the end of the companies. Last week, Uchumi Supermarket posted a negative net worth of close to 200 million shillings after its debts became more than the value of its assets.

Last year, a total of 20 companies issues profit warnings and if the rule will be made to cater for last year, 20 CEO and CFOs will have to take a pay cut. Some of the companies that had issued profit warnings are East African Portland Cement, Liberty Kenya, Britam, Pan African Insurance, Standard Chartered Bank, ARM Cement, East African Cables, Express Kenya, Sameer Africa and Standard Group.

Article by Juma Fred.