The CBZ Holdings (CBZH) chair’s resignation over his board pay rot that stinks to high heaven is honourable. The rest of the board should follow suit, especially members of the remuneration committee.
The Brett Chulu Column
They are complicit in catalysing this putrefaction, a national embarrassment of no small proportion. They failed dismally at exercising their fiduciary duties. It is totally unforgivable for members of a board of the biggest financial institution in the country to exercise dereliction of duty in their watchdog role. Facts demand their en masse resignation.
For starters, it is unfathomable that CBZH’s board members let their chair receive compensation in addition to board fees and yet remain silent on his independence status. It is either the board members are not cognisant of the best practices on non-executive director compensation or they knowingly turned a blind eye to the flagrant violation of accepted corporate governance principles. Either way, it warrants resignation.
The ABCs of corporate governance require any director to know that any compensation beyond board fees puts into doubt the independence of a non-executive director. South Africa’s King IV and the UK Code, for instance, state without equivocation that a director who receives additional compensation such as pension should not be considered independent. The very fact that the former CBZH chair’s compensation elements read like a till slip should have alerted the board to the fiduciary requirement to declare the chairperson not independent.
The medical aid benefit alone that the former CBZH chair received was enough to raise the eyebrows of board members well-versed in basic remuneration governance. There is no record that CBZH’s annual reports explicitly state that the chair was not independent. We are left with no option than to conclude that individual board members were involved in a conspiracy of silence. If they cannot perform their watchdog role, what is the justification for their retention? If they could not bite, they could have at least barked. No bite. No barking. Just do the right thing. Resign.
Simple benchmarking would have detected the vulgarity of the former CBZH chair’s compensation. The former CBZH chairman, as reported in the Zimbabwe Independent, received a medical aid benefit and perks that include DStv subscription, fuel, security guard, wi-fi and newspapers, amounting to US$18 902 per annum. These benefits and perks, excluding board fees, would take the CBZH’s compensation above the median compensation for South Africa’s Johannesburg Stock Exchange (JSE)-listed chairpersons for 2016.
This is a serious indictment on the competence of CBZH’s board members; data on non-executive directors’ compensation for JSE-listed companies is freely available. It would have cost zilch for CBZH board members, especially the remuneration committee members, to obtain comparative data to warrant red-flagging the chair’s compensation. If we add the executive car perk that the former CBZH chair enjoyed, the annual perks and benefits could be anywhere between US$30 000 and US$40 000. This excludes board fees. Any board member worth their salt would know that the cost of a company-purchased vehicle is an integral part of the remuneration package.
The US$30 000-US$40 000 annual benefits and perks would take the CBZH chair’s board pay above the upper quartile compensation for JSE-listed chairpersons. That’s scandalous. That CBZH board members could fail to detect such a basic remuneration discrepancy casts a very dark pall on their competence. It’s gross negligence. They must resign.
The alleged US$40 000 per quarter compensation to the former CBZH chair is startling. The chairperson of the National Social Security Authority (Nssa), a top-20 shareholder in CBZH, is reported to have put it to CBZH to clear the air on the alleged US$40 000 per quarter compensation. This was summarily dismissed as unfounded by CBZH. This outright dismissal should not be taken as credible in the absence of detailed disclosures of every pay element given to the former CBZH chair. I shudder just entertaining the possibility that the former CBZH chair could have been earning as much as US$200 000 per annum, all disparate compensation elements put together.
The upper quartile compensation for 2016 for non-executive directors of JSE companies was US$49 642. The upper quartile compensation for mid-cap (mid-market capitalisation) JSE financial services companies’ chairpersons for 2016 was US$136 571. CBZH, with a US$72,2 million market capitalisation as of last Thursday, would be considered a small-cap financial services company in South Africa. How scandalous is it then that a small-cap bank allows its chairperson to earn far in excess of the chairpersons of mid-cap South African financial services companies?
A small-cap to small-cap comparison makes the former chairperson’s compensation outrageously disproportionate. The upper quartile compensation for small-cap South African financial services companies for 2016 was US$39 357. The former CBZH chair’s compensation would be so obscene that it would not be considered for data analysis in the small-cap South African statistical analysis.
One would expect that board members of a top company like CBZH would be savvy enough to do such basic analyses.
Board members who are not on the remuneration committee might be forgiven. The same cannot be said of members of the remuneration committee; we expect them to provide in depth remuneration analyses. The remuneration committee members who presided over this stench should be the first to do the honourable thing and resign. If they neither have the technical skills nor technical literacy to deal with remuneration matters at this level they have no business being in this committee. If their challenge is that they can’t tell truth to power due to cowardice, they have no business being in any board.
Nssa should quickly exercise its power and demand structural changes to remuneration governance at CBZH as well as in every company where they hold significant shareholding. It must insist that say-on-pay should be exercised by shareholders. Nssa must insist that a binding vote on non-executive director pay be exercised at annual general meetings (AGMs). It also must demand that a binding vote on executive compensation be taken at AGMs, with the results of the vote made publicly available.
Nssa should force the disclosure of executive pay in detail by demanding line–by-line analysis for each executive and non-executive director. Nssa must categorically refuse the lumping of compensation reportage into a single summative figure. It might be a progressive move if Nssa pushes the board to adopt the Total Guaranteed Package (TGP) and Clean Pay (CP) approaches to remuneration structuring; this will help prevent executives from hiding certain compensation elements under the “administrative expenses” rubric. TGP and CP will also allow certain elements of compensation that are not considered as compensation in Zimbabwe to be reported as compensation.
The writer has been involved in high-profile remuneration consultancy outside Zimbabwe. Some of the remuneration consultancy recommendations for a key parastatal (outside Zimbabwe) were tabled before the country’s parliament and adopted.
Chulu is a management consultant and classic grounded theory researcher. He has published research in an international peer reviewed academic journal.