Govt orders salary freeze in parastatals

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Business Writers
Government has imposed a salary and benefits freeze for management at State Enterprises and Parastatals (SEPs) amid plans to have the salaries reflect their performance. There are suggestions that the obtaining salaries and benefits be slashed because they are “unsustainable”. All heads of ministries have since been directed to cascade the developments to all SEPs under their administrative portfolios.

Once the information has been sent to the parastatal bosses, they are directed to respond in writing, indicating that they got the correspondence from their superiors. This is contained in a letter dated December 12, 2017 which was signed by the Chief Secretary to the President and Cabinet. The letter was addressed to all heads of ministries. Said Dr Sibanda: “You are aware that Government has been developing a new remuneration framework applicable to executive management at all SEPs.

“Management costs at most SEPs continue to escalate at the same time as performance and service delivery by most State entities continue to deteriorate to unacceptably low levels.

“It is imperative that the costs be contained and even reduced so as to reflect the performance of the entities concerned and the overall performance of the national economy. Unjustifiably high salary and benefits packages are simply not sustainable and cannot continue. “Accordingly, with immediate effect, a freeze is imposed on salary and benefit packages for all executive management at all SEPs.”

The directive comes at a time when SEP bosses have continued to bleed parastatals by offering themselves obnoxious salaries at a time the firms they preside over are making losses every year. Thirty-eight out of 93 SEPs audited in 2016 incurred a combined $270 million loss largely due to weak corporate governance practices and ineffective control mechanisms. Of the 93 entities, 70 percent of them were ‘technically insolvent,’ or ‘illiquid’, presenting an actual or potential drain upon an already overburdened Government.

Successive reports by Auditor-General Mildred Chiri show that SEPs are in a dire situation due to weak corporate governance structures and ineffective internal control mechanisms. The most serious common weakness identified in SEPs revolves around the structure, composition and competence of boards, and the manner in which the boards operate. According to a survey, while some SEPs operate without full boards, some boards were reconfigured as line ministers changed and in extreme cases, some boards were run by one person.

This exposes SEPs to abuse by executives and the board. It is understood that some boards claimed board fees even when they had not sat while others never sat for over a year. But President Emmerson Mnangagwa, in his inauguration speech, said the time for condoning underperforming parastatals is over. Finance and Economic Planning Minister Patrick Chinamasa also indicated in the 2018 national budget that underperforming SEPs would no longer be funded unless they presented acceptable turnaround strategies.

Secretary for the Corporate Governance Unit in the Office of the President and Cabinet (OPC) Ambassador Stuart Comberbach yesterday told Business Weekly that addressing salary structures for SEP executives is still an ongoing process.

“I think it is too early for me to comment on that issue at this stage. But I can tell you that work is certainly on parastatal reforms, remuneration of parastatal bosses and corporate governance,” said Ambassador Comberbach. In another letter seen by Business Weekly parastatal chief executives were asked to “provide current, accurate and comprehensive data in respect of salary/ benefits being paid to executive management”.

“The Office of the President and Cabinet requires that this information be forwarded to their office by 31 January 2018. Therefore, in order to meet this deadline, you are being requested to complete the attached template and forward to this ministry by Friday, 19 January 2018.”

The poor performance of SEPs has seen their contribution to national GDP growth slumping to around 2 percent from 40 percent. However, the Public Entities Corporate Governance Bill is set to clip the wings of parastatals bosses. The Bill allows for Government to go after heads of SEPs who received salaries and benefits beyond the threshold set for bosses of public entities.

Government fixed maximum salaries and allowances for senior executives of public entities at $6 000 monthly in 2014 and directed that expenditure on employment must not exceed 30 percent of revenue. But the directive was ignored. Expenditure by SEPs shot up by 5,9 percent per year between 2011 and 2014 while annual revenue grew by a mere 2,9 percent. Aggregate annual expenditure averaged $3,5 billion between 2011 and 2015 period, while personal costs rose by 5,5 percent on average.

 

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