Africa adopts global executive remuneration trends

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The research outlined some striking developments in executive remuneration at listed companies across six key jurisdictions – Kenya, Mauritius, Nigeria, South Africa, Tanzania and Zambia. Among the notable developments are the increasing adoption of executive share plans (ESPs) and employee stock ownership plans (ESOPs), along with the use of innovative structures such as the single incentive, which combines short-term and long-term incentives (STIs and LTIs).

Notably, there is a growing trend among employers to apply malus and clawback provisions to incentive awards. These provisions apply when trigger events such as material misstatement of financial statements and misconduct occur. Along with minimum shareholding requirements, these provisions are now common in developed markets. They are not ‘executive friendly’ provisions but are favoured by shareholders to protect and align management with their interests.

Also gaining momentum is the integration of environmental, social and governance (ESG) performance conditions into executives’ reward packages. As such, African-listed companies must incorporate ESG performance measures into their future remuneration frameworks, especially in terms of LTIs.

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However, this will need to be accomplished in a balanced way that provides sufficient comfort to global investors, while not discouraging great leaders and key talent from senior roles at African companies.

A further trend in Africa that aligns with global practice is the emphasis on the non-financial aspects of the total reward environment, such as flexible working arrangements and executive wellness programmes for work-life balance.

Greater remuneration disclosure

One area of executive remuneration where approaches differ markedly is in disclosure and reporting. While all six countries included in the Bowmans study have legislation to encourage good remuneration governance, there are varying levels of disclosure of public companies’ remuneration policies and data.

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The research shows that public companies in Kenya and South Africa provide the most detailed remuneration reports, and this may well be a function of stricter regulatory requirements and enforcement. On the other hand, companies in Mauritius, Nigeria, Tanzania and Zambia tend to only disclose guaranteed packages.

There is an opportunity for further disclosure in the countries with limited disclosure. This in turn would enhance the overall standard of disclosure across the African continent. Enhanced remuneration governance and reporting increases the comfort of global investors in the quality and integrity of a company’s overall governance and sustainability strategy.