How directors’ pay compares at top two banks

Disclosures made to the Capital Markets Authority reveal huge disparities in directors’ earnings at Kenya’s two leading banks last year.

Directors of Kenya Commercial Bank (KCB) earned Sh400 million, 67 per cent more than fierce market rival Equity Bank, which paid its directors a cumulative Sh130.8 million last year.

On average, the figures translate to a remuneration package of Sh30.8 million for each of KCB’s 13 directors for the year ended December 31, 2017, almost triple the Sh11 million each that the 12 directors at Equity Bank earned.

In 2016, KCB paid its directors Sh347 million while Equity paid Sh163.9 million.

According to filings by the two banks, KCB Chief Executive Joshua Oigara took home Sh256 million (average Sh21.3 million per month) in salary and other earnings for the year, out-earning Equity’s James Mwangi whose remuneration of Sh60.5 million translates to Sh5 million per month.

Under new reporting rules, public-listed companies are required to state the total compensation of each director, including salary, bonuses, pension and expenses charged to the company.

Mr Oigara’s compensation for 2017 comprises Sh65 million in base salary, a few rungs above Mr Mwangi’s Sh57 million. His bonuses for the period (Sh191 million) hugely overshadow Mwangi’s undefined allowances of Sh3.7 million.

However, since Mwangi is a major shareholder in Equity Bank, holding 3.39 per cent stake in the firm as at December 31, 2017, he could earn millions in dividends.

Mwangi’s direct and indirect shareholding at Equity stands at 171 million shares worth nearly Sh8.7 billion, while Oigara holds 35,157 shares in KCB currently worth nearly Sh2 million.

KCB and Equity are Kenya’s two biggest banks, with Sh646 billion and Sh524 billion in assets respectively.

About a month ago, Equity edged out East African Breweries as the second biggest company at the Nairobi Securities Exchange after it crossed the Sh200 billion market capitalisation mark, thanks to a bullish run of its share price.

Safaricom remains the largest company on market capitalisation.

While KCB says its approach towards reward and recognition is to ensure individuals are adequately compensated for their role in the company’s business success, Equity has reserved that role for its board.

“The board reviews and recommends the remuneration structure of directors annually, subject to shareholder’s approval. Directors’ remuneration is linked to performance but is competitively structured to attract and retain the best talent to effectively develop the group’s business,” Equity says in the disclosure.

At KCB, the 11 non-executive directors, defined as those who do not have a management role in day-to-day running of the company, earned a combined total of Sh85 million (Sh7.7 million each).

Data from the CMA shows a non-executive director at Equity was paid on average Sh5.1 million last year. Remuneration for non-executive directors in both banks is well below the pay of their executive directors.

Equity has two executive directors - Mwangi and Ms Mary Wamae who was appointed to the role in July last year. Oigara and his Group Chief Finance Officer, Lawrence Kimathi, are the executive directors at KCB.

The question, however is; what could be the cause of the big disparity between the directors’ pay at the two banks?

During the year under review, Equity Bank had four board meetings compared to KCB’s nine. According to the disclosures, the former had four sub-committees that sat 16 times cumulatively last year, compared to KCB’s six sub-committees, which met 44 times.

While Equity says it does not pay its directors any fees or allowances for attending board meetings, KCB’s non-executive directors chalked up Sh32 million in sitting allowances for that period.

With disclosures from other tier one banks such as Co-operative, Barclays, Standard Chartered and Diamond Trust Bank on executive pay yet to be made public, technically KCB’s Oigara holds the top spot for executive pay among lenders.

Last year, KCB reported the largest net income of Sh19.7 billion in the year ended December 2017, followed by Equity (Sh18.8 billion) and Co-op (Sh11.4 billion).

While employees of Equity earned an extra Sh235 million by virtue of owning three per cent of the issued shares in the lender through an employee share ownership plan last year, KCB’s employees are paid a bonus only if they achieve 95 per cent or more in a scorecard of the set targets.

Oigara’s salary rose 14 per cent in the year ended December 2017, according to the annual report. His bonus was left unchanged at Sh147 million, in line with the bank’s flat net earnings of Sh19.7 billion in the period.

“Executive directors are eligible to participate in the group’s bonus scheme which is anchored on achievement of key business performance indicators, but are not entitled to earn fees or sitting allowances,” says Equity in its report.

Mwangi was not paid a bonus for 2017 but earned Sh3.7 million in unspecified allowances, raising his total pay to Sh60.4 million.

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