Between 2019 and 2020: Understanding The New Realities of CEO Remuneration

Saturday, August 01, 2020 / 07:00 AM / ByProshare Research / Header Image Credit: EcoGraphics

In2019 CEOs where beginning to gain confidence in the economy as gross domesticproduct grew steadily out of the negative growth rates between 2016 and 2017,as recession blues passed away. The C-suite in 2018 had become a few notchesmore optimistic and corporate chief executives (CEOs) had started to see theirremunerations climb. The trend continued in 2019 as the economy showed signs ofsustained growth with analysts predicting growth rates of between 2.5 and 3% (GDP actually closed the year at 2.55%).

Theyear 2019 promised a strong 2020 as the Central Bank of Nigeria's (CBN's)manufacturing sector purchasing managers index (PMI) stood at 60.8, indicatingexpansion in the manufacturing sector for the thirty-third consecutive month.In 2020 the story has flipped with the PMI for July 2020 slumping to 44.9indicating manufacturing sector contraction, a worsening of CEO headaches.

The2^nd edition of Proshare's CEO Remuneration report titled "CEORemuneration: Paying the CEO in a Pandemic the Unanswered Question" providedfresh insights as regards CEO remuneration and the various dynamics andcomplexities associated with CEO pay in 2019 and the likely worsening shape ofthings in 2020. The following fresh insights were deduced from the report:

In the inaugural edition, there were no major shakeups in the economy like the coronavirus. The 2^nd edition of the CEO remuneration report addressed in detail the possible impact of the coronavirus on the remuneration of various companies in various sectors in 2020.
The new report laid emphasis on theories surrounding the various motives for compensating CEOs which was classified into three main approaches namely the value approach, symbolic approach, and the agency approach. Also, Behavioural economist Dan Ariely's theory was discussed to understand if the executive's productivity would increase if their bonuses rose.
The second report addressed executive remuneration around the globe, about what characterizes executive remuneration in different regions and the key challenges facing companies as they seek to improve the link between pay and performances.
Unlike the 1^st edition of the CEO remuneration report in which only two metrics which are revenue and profit were used, the 2^nd edition expanded the metrics to include dividend's paid, earnings per share and dividend payout ratio to understand if there is a nexus between CEOs pay and shareholders value creation.
New findings emerged that not all CEOs who received high remuneration were able to increase shareholder's value which reveals that other factors determine CEOs' pay, hence the need for further studies.

Asat the time of publishing the second report no CEO had yet responded toProshares enquiries concerning other aspects of their total compensationincluding bonuses and dividends. It is hoped that by the next edition of thereport in 2021, it would be possible to gather more detailed information on howmuch Nigerian CEOs receive annually.