Zimbabwe must avoid remuneration ceilings

By Brian Sedze

Government bureaucrats exhibited extreme anger, discomfort and distress that Chief Executives of state owned and related enterprises earned “huge” and unregulated remuneration.

Spirited and well calculated media campaigns had an impact of turning some of the CEOs into somewhat monstrous demons of unprecedented proportion, subject to loath and denigration by the generality of the populace. It became generally believed the remunerations were obnoxious, immoral and a cause of Zimbabwe’s economic quagmire.

Some of the remunerations could well have been beyond any reasonable justification when measured against the respected four performance perspectives of the Balanced Score Card. However regulating remuneration through salary ceilings was an uninspiring, vengeance seeking, ill considered and politically motivated national strategic trajectory.

Remuneration ceilings are a bad policy. A ceiling like any price control is a putrid communist concept which as we all know is an antiquated system detrimental to national interests. The undesirable consequence of remuneration ceilings is the damage on corporate and country productivity and competitiveness.

There is no justification for throwing money for nothing to the CEOs. They rather should create more value than the their costs to justify salaries.

Individual CEO performance should be the remuneration ceiling, not some figure a government bureaucrat dreams of without expending any energy in scientific study of industry, country ,regional and global economic realities. CEOs must demand the most of what the market and their value creation can afford.

Politicians must not make the populace believe CEOs are immoral or extortionists because they are willing to do things, they are capable of, that others may be unable or unwilling to do. Remuneration of competent, qualified, skilled and value creating CEOs should be performance based, which performance may justify a salary beyond the US$6000,00 caps. The solution for Zimbabwe is a more robust “comply or explain” corporate governance code. The emphasis of the compulsory code could well be governance of strategy.

Competent and qualified people have a plethora of choices as regards to the entities, sectors, regions and countries to deploy their capabilities due to globalization of labour markets. “A” league CEOs are highly unlikely to be attracted to work for Zimbabwe state enterprises were they have to be content with remuneration ceilings.

These state enterprises are likely to attract “B” league  and often “C” league type CEOs. The leagues are of mediocre, intellectually challenged and often plainly incompetent CEOs. These second-rate CEOs have no capacity to mastermind strategic revolutions in these state owned enterprises thereby harming both corporate and country productivity and competitiveness.

In the event an “A” league CEO is deployed there will be external remuneration inequity with professional peers. The inequity ordinarily manifests often cause grave agency problems. The CEO ends up engaging in nefarious acts to ensure life style equity with peers.

The CEOs often start living beyond the purported remuneration ceiling without evidence of any prudent financial engineering on his or her part. In Zimbabwe the agency problem manifests through lifestyles not supported by remuneration but by alternative businesses like farming.

These activities chew executive’s corporate time, resources and the CEOs attention. An entity run by the top man with dividend attention and priorities is not likely to be successful. On the other side of the dichotomy the problem manifests through corruption, corporate greed, conflict of interest, competition with employer, fraud and malfeasance.

The recent Auditor General and Comptroller reports are evidence to the agency issues caused by artificially low salaries of state enterprise and parastatal heads.

Management and employee engagement depends on organizational entry and retention policies. Profitability, success and productivity are highly dependent on such employee engagement especially at the top level such as that of the CEO.

In as much as other intrinsic and extrinsic rewards are important, basic remuneration policy is of significant consideration for a self respecting and competent professional to consummate an employment contract. Top talent is attracted to entities that remunerate based on perceived or actual value addition. Without top talent state enterprises shall continue to be laggards in productivity and success.

Masterminding three hundred and sixty degrees revolution required for delivering national economic and social strategic outcomes especially in the moribund and insolvent enterprises like Ziscosteel, SMM, CSC, Air Zimbabwe, ZUPCO, NRZ and ZBC requires the attraction and retention of absolute jewels in the corporate world.

State enterprises devoid of other remuneration interventions like share options will have to pay remuneration that attracts talent within and without Zimbabwe to enhance the enterprise and national competitiveness and productivity. These incompetent and “C” league players have been harming the country’s productivity in steel making, mining, meat processing and transport amongst many other areas. There is a need to map a new strategic direction through deploying competent human capital in state enterprises.

Zimbabwe may have to pay skills retention premiums above regional peers to attract new and competent state enterprise CEOs. This is due to a number of factors including but not limited to prohibitive tax regime, ever unpredictable and inconsistent changes in laws, politically induced economic decline, high perceived and actual political interference in business, decaying infrastructure, relatively high cost of living and lack of access to capital markets. The loud sounding nothing plea for critical skills in the diaspora to return home is actually a futile howl in the abyss without substantial and significant remuneration reform.

The failure to seamlessly align remuneration policy to national strategic intention has made Zimbabwe an exporter of its top talent into the region. The exported human capital is spurring productivity, success and competitiveness in the region much to the detriment of Zimbabwe.

The claim that salary ceilings are a panacea to state owned enterprise challenges is an act in sabotaging the economy and an unnecessary distraction. The real solution is in the deployment of robust and compulsory corporate governance system with emphasis on governance of strategy.

In addition ministers must desist from being de facto board chairpersons and effective CEOs of state owned enterprises they superintend. Ministers should discard the system of appointing board members based on sectorial, tribal, social club and political affiliations but simply based on competence and independence. It will be better if we have an independent board appointing agency for state enterprises.

Brian Sedze is the Chairman of Africa Innovation Hub, a think-do tank in strategy and Innovation. He can be contacted on [email protected]