JOHN Mushavanhu, the Bankers Association of Zimbabwe president recently remarked that salary increments demanded by the Zimbabwe Bankers Workers’ Union (Zibawu) of 80% were not viable. One could almost infer from his “they can go ahead and strike” utterance that he thinks the demands are a pie in the sky in the bye and bye. Could he be right?
Using the recently released half-year (H1) financial results for banks we took Mushayavanhu’s assertion to the jury.
Stanbic Bank recorded the lowest H1 remuneration to income (RI) ratio of 28%, meaning that for every US$1 generated 28 cents were spent on remuneration. Comparatively, in the previous year Stanbic was five cents per dollar more generous. Commercial Bank of Zimbabwe (CBZ) posted the second lowest H1 remuneration to income (RI) ratio at 29%. This represents a 1% improvement from the same period last year. It would appear that Stanbic and CBZ see a RI ratio of 30% as sustainable. The Post Office Savings Bank (POSB) comes third at 35% is just 5% shy of the cabinet directive of 30%. This is a remarkable performance from a state-controlled entity where RI ratios exceeding 70% have been widely reported. Previously, POSB was channeling 56 cents for every dollar received towards remuneration. Could it be that the performance management system based on the famous Balanced Scorecard framework is forcing the board and the executive management teams to constantly keep their corporate eyes on the salary-income score board?
Stanbic and CBZ’s below-30% RI ratios come as no surprise. These banks are among the few highly transparent banks in Zimbabwe, including Premier bank and Barclays. The facts speak for themselves. Stanbic and CBZ are some of the few banks that disclosed the remuneration levels of their senior management. CBZ’s senior management collectively got 3% of the income received, a 1% improvement. Stanbic dished 5% of their income to its senior management, unchanged from the same period previously.
By Zimbabwean standards, CBZ and Stanbic are fairly lucid with the pay of their top executives. But when placed side by side South African banks, their crowns do not glitter. Absa’s case is sufficient to show the contrast. The Absa remuneration report for 2009 lists the top executives by name: Maria Ramos, L.L von Zeuner, JH Schindhutte, SF Booysen (retired CEO replaced by Maria Ramos) and NF Mageza. I can reveal that Maria Ramos the CEO of Absa earned the following in 2009: annual salary R4 712 272 (US$628 000); annual retirement fund contribution R376 582 (US$50 000); annual director fees R124 974(US$16 000), giving a total guaranteed remuneration (total fixed pay) of R5 213 828(US$695 000). In addition Maria received an annual performance bonus of R2 916 550 (US$389 000) and long term incentive award (deferred) of R5 416 450 (US$722 000) giving a total variable pay of R8 883 000 (US$1 100 000). All in all Maria’s total cost to company for 2009 was R13 547 000 (US$1 800 000). Total cost to company is defined as the sum of basic total guaranteed pay (basic salary plus fixed benefits), short-term incentives (including performance bonuses) and long-term incentives.
This level of rigour in pay disclosure applies to each of the listed top executives. Interestingly, the total cost to company for all the directors is just 1% of Absa income. For every rand of income 1 rand cent went to rewarding Absa’s top executives. This ratio is three times and five times the current levels at CBZ and Stanbic respectively.
There is more.
With this level of transparency at Absa, some nuances in remuneration were apparent which we could not determine for the Zimbabwean banks. One interesting analysis is called remuneration leverage. Remuneration leverage splits total remuneration into fixed and variable pay. For Absa, the leverage for combined executives is 38:62.
This means that the total guaranteed pay is 38% of the total cost to company while performance based pay is 62%. Stanbic’s income increased by 203% while the disclosed total remuneration to senior management increased by 199%. For CBZ, income increased by 168% while the disclosed total remuneration for senior management increased by 118%. For the rest of the employees the overall increase in pay is 165% for CBZ and 134% for Stanbic. Without knowledge of leverage ratios which could not be extracted from the interim statements it is impossible to determine the proportions that went to fixed and re-earnable pay. I hope less than 10% went into ‘permanent pay’. Short of this we have a major disaster in the making.
Premier Bank’s remuneration numbers are somehow surprisingly high given that they are as highly transparent as Stanbic. Normally, highly transparent organisations have very low RI ratios. Premier’s overall RI ratio is 87%, up from last year’s sensible 25% (perfectly in sync with its high transparency ratings). At an RI ratio of 87%, what then is left for the shareholder? Premier’s key management RI ratio stands at 8%, up from 2% last year. Premier’s ratios are understated. Premier gave loans to employees amounting to US$1 440 000, repayable between three to five years. The stated interest rates charged range from 7% per annum to the holding company’s cost of capital. Applying a total cost to company model, the difference between the ruling interest rates (above 10% per annum) and the concessionary rates multiplied by the loans given is an integral part of remuneration. That makes Premier’s true key management RI ratio to soar above 10%. That is unsustainable.
Barclays’ RI ratio is 40%, down from last years’ 44%. To provide a more accurate picture, retrenchment costs were not included in Barclays’ analysis. Had retrenchment costs been included, Barclays’ RI ratio for H1 would be a frightening 85%. Barclays’ key management RI ratio at 3% is 1% up.
NMB at 42% is thrice as much when compared to the same period last year. Could it be that last year’s RI ratio of 14% was making NMB’s salaries unattractive? Mushayavanhu’s FBC is sitting at an RI ratio of 47%, up from a previous low of 35%. MBCA’s RI ratio rose from 22% to 45%. Botswana headquartered BancABC’s RI ratio is at 46% compared to 48% previously.
Agribank is the worst performer so far. With 98 cents out of every earned dollar siphoned towards remuneration, Agribank is living from hand to mouth. However, when compared to the same period last year where an RI ratio of 137% was recorded, the current 98% RI ratio could be a reflection that Agribank is still overstaffed. Perhaps Agribank might want to ‘borrow’ notes from POSB.
Mushayavanhu’s assertion that increments outpacing the current inflation rate are not sustainable is very credible. Coincidentally, “Zi bawu” in Zimbabwe street lingo refers to an intimidating giant. For Zibawu, opting for the brain ahead of brawn to avert a strike that was odds-on shows that disputes can be solved creatively.
Banks and other firms should avoid creating expectations by promising too many guaranteed pay elements. Matching US’s Morgan Stanely’s 50% RI ratio is a non-starter for Zimbabwean banks.
*Brett has successfully completed high profile remuneration consultancy projects with key institutions in Sadc. Zimbabwean organisations wanting to share notes on business aligned remuneration strategies and policies are free to contact me.
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By Brett Chulu