eBusiness Weekly
Talent Dube (Zim Code-joint Secretariat of ZIMLEF, IoDZ &SAZ)
The Zimbabwe Code of Corporate Governance, under Clause 164, clearly provides that the board should set up a remuneration committee to assist it in setting and administering remuneration policies that is linked to the company’s short term and long term interests.
The remuneration policies should cover all levels in an organisation. It is the role of the remuneration committee to ensure that the business gets the maximum return from its investment in employee remuneration. The committee must note that while market trends are important, ultimately what should determine what the executives and the generality of the employees earn is the company’s ability to pay.
In a broader structure the role of this committee covers leading and guiding the implementation of a sound human resources strategy for the business.
Specific to remuneration, the committee must lead in the designing and crafting of a remuneration strategy for the business. To enable the committee to perform this task effectively the committee must source for quality information on remuneration trends.
To avoid pay governance issues emanating from biased or poor quality data the committee should liaise directly with consultants who provide market salary information.
The committee should be involved in setting the terms of reference for all their work without undue influence from the executives especially human resources.
Clause 165 of National Code on Corporate Governance (“ZimCode principle”) recommends that the remuneration committee should be composed of independent non-executive board members, including the board chairperson who shall not chair it.
The committee should be given clear terms of reference which indicate the scope of its authority, role functions and duties, and how it relates to the board.
Clause 357 further notes that a remuneration committee of the Board should be wholly composed of non-executive directors and an independent director as chairperson.
Principle 358 of the ZimCode clearly states that non-executive directors or any committee or the board should not determine the remuneration of non-executive board members.
This function should be given to a neutral professional company to make recommendations based on fairness, industry practice, Board member experience and contribution and the company’s ability to pay.
Clause 125 further states that the chief executive officer’s remuneration should be based on individual company and be performance and incentive based, such remuneration should be approved by shareholders in a resolution passed by a majority of the members present at a meeting convened for that purpose.
The corporate governance framework for State Enterprises and Parastatals (“SEPs”) in Zimbabwe states that, the process for determining the remuneration for board members shall be transparent and should be approved by the minister and in line with the principles of affordability, sustainability, and reasonableness.
In terms of Clause 19 of the corporate governance public entities Bill, boards of public entities will be required to observe the principles of transparency with respect to fixing the remuneration of chief executive officers and other senior staff members set out in the Third Schedule.
Also the conditions of service of chief executive officers and other senior staff members of public entities will have to be fixed at full meetings of the entities’ boards, and will have to specify any terminal benefits the officers will be entitled to.
The minister will have power to formulate model conditions of service for such officers, and boards will generally have to follow those model conditions when fixing conditions of service for their staff
If the organisational remuneration committee is not performing its function effectively one will find a remuneration system that has no connection to the performance of the business.
As a result the company’s remuneration systems will frequently be featuring in the Press with negative coverage, as with the current case with Zimbabwe Electricity Supply Authority.
This damages the company’s overall brand image. There are a few organisations with remuneration committees, in most companies remuneration issues are normally handled by generalist human resources personnel with limited experience, let alone with incompetent knowledge of current emerging practises. It is time for boards in Zimbabwe to take a bold step in order to strengthen corporate governance with respect to pay governance.
For more information on the ZimCode contact: [email protected]
