The global financial crisis, which severely battered international economies, brought executive remuneration into the spotlight. However, structuring of executive remuneration for organisations employing executives in Africa, adds another layer of complexity to this contentious subject.
Karen Crous, associate director: Executive Reward for PricewaterhouseCoopers (PwC) says, “The lack of skills available in Africa often requires organisations to employ or redeploy senior expatriates to run the business division in the respective country. There are a variety of issues organisations need to consider when placing senior people in African countries, particularly in terms of executive remuneration and the structuring thereof.”
Developments in corporate governance brought complexity and additional requirements to remuneration practices, forcing organisations to amend their executive compensation processes. In addition, insufficient credible data in the war of talent in Africa makes it difficult to decide what to pay executives.
Crous continues, “Unlike South Africa and other western countries, where access to a company’s financial reports are freely available, detailed executive compensation information is not as easily accessible in certain African countries. As a result there is a dire need for independent remuneration committees to oversee the compensation process and report to the board on any relevant issues.”
Setting pay levels
To overcome the lack of reliable benchmarking data in Africa, multinationals should split pay levels into three categories:
Local employees: These are usually citizens of the country and operate at junior levels as they don’t yet have globally marketable skills.
Expatriate employees: These are more senior employees assigned to the host country for their skills. In many cases these employees are globally mobile and are not permanently placed in the country making the structure of their compensation a little trickier. The salary and benefit expectations of these employees are more complex when a wide range of benefits is expected.
Global employees: These are senior people who have globally marketable skills, generally paid in Dollars or Euros. One of the most significant factors to consider here is that these employees’ salaries must be adjusted for local cost of living and currency of the country in which they reside.
When companies conduct benchmarking to gauge salaries, they compare themselves to similar companies or a peer group which considers the number of employees, market capital, turnover and profit after tax. While the benchmarking is being conducted it is vitally important to consider the three categories of employees.
Crous concludes, “When placing employees into positions in other African countries it is also important to understand the country’s tax systems and exchange control legislation which further adds complexity.”