One of the most pressing issues in corporate governance today is the transparency — or lack thereof — surrounding executive pay. Across boardrooms, both new and experienced board members often find themselves grappling with the complexities of executive compensation. Alarmingly, there have been cases where board members claim ignorance about what the CEO and other executives earn. This is not only unacceptable but also a fundamental failure of governance.
The duty to know
It is absurd for any board member to profess a lack of knowledge about executive compensation in a company they oversee. Full visibility into executive pay is not a privilege; it is a necessity for fulfilling fiduciary duties.
This information should be periodically reviewed and discussed as part of the board’s governance responsibilities.
If you find yourself unaware of these details, you not only have the right but the responsibility to formally request a presentation of the executive compensation structure. Board members must demand transparency in this area, ensuring that executive pay aligns with company performance and market standards.
Unfortunately, there are troubling accounts of board members being deliberately kept in the dark under the pretext that executive pay is “confidential information.” Such a claim is not only misleading but also a breach of accountability.
No CEO or executive team should dictate what the board can or cannot review when it comes to pay structures. Transparency in executive compensation is fundamental to informed decision making, and board members should never hesitate to demand clarity.
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One of the biggest weaknesses in Zimbabwean corporates is the lack of proper governance around executive pay. Many boards fail to recognise that it is their responsibility, not the CEO’s, to approve executive salaries.
Too often, they defer this critical function to management without ensuring the process is backed by proper market data. In some cases, the data used for benchmarking is sourced in a way that conveniently serves executive interests rather than providing an objective comparison.
The CEO should not be the one sourcing market data to justify executive salary adjustments. If the CEO or other executives observe that their compensation is falling behind industry standards or that key talent is leaving due to pay concerns, they should raise the issue through the HR committee.
However, it is the HR committee’s duty to independently source salary reports and market data — without management’s involvement — to ensure objective, unbiased benchmarking. This prevents executives from cherry-picking data that supports their own salary increases while ignoring broader industry trends.
Failing to follow this independent process creates serious governance vulnerabilities.
I have encountered situations where CEOs, exploiting the board’s ignorance, awarded themselves an enormous salary increase without proper oversight. When I joined one such board, one of the first areas I reviewed was executive pay governance, and the findings were shocking. The board had essentially been sidelined in a process that should have been under its control, leading to an embarrassing failure of governance.
The risks of weak oversight
Beyond unchecked salary increases, another common governance loophole is the issue of executive loans. Weak oversight in some companies allows CEOs and their teams to approve loans so large that they will never be repaid. These loans, sometimes hidden from full board scrutiny, create financial risk and expose the company to potential losses and ethical concerns. If left unchecked, such practices can severely damage both the financial health and the reputation of the company.
Weak governance also creates disparities in executive pay structures, where some executives receive disproportionate increases while others are overlooked. This can fuel internal resentment, weaken morale, and lead to talent retention issues. Moreover, when executive pay is not aligned with company performance, it erodes investor confidence and raises concerns among key stakeholders.
Taking back control
To prevent governance failures, boards must ensure that the HR committee takes full control of executive pay governance. This involves:
Sourcing independent salary reports: The HR committee should commission independent salary benchmarking reports, ensuring objectivity in determining fair compensation levels. These reports should come from reputable compensation consulting firms, not from management-led initiatives.
Seeking expert analysis: Beyond obtaining data, boards should engage compensation experts to analyse trends and recommend best practices. This helps ensure that salary adjustments align with industry standards, company performance, and long-term business strategy.
Maintaining full board oversight: The board—not the CEO — must have the final say on executive pay. All salary reviews, adjustments, and bonus structures should be presented to the board for approval, with full transparency on rationale and benchmarking data.
Ensuring pay alignment with performance: Compensation structures should be designed to reward performance, not tenure or executive influence. Pay increases and bonuses should be tied to clear, measurable business outcomes, not arbitrary or subjective assessments.
Preventing excessive executive control: CEOs and other executives should not have undue influence over their own compensation. The HR committee should have the authority to assess executive pay independently, ensuring that decisions are in the best interest of the company rather than individual executives.
Strengthening governance policies: Boards should establish clear policies on executive pay governance, ensuring that any changes to compensation structures follow a well documented and transparent process. This should include strict policies on executive loans, bonuses, and other benefits that may create financial risk.
Consequences of neglecting pay
Boards that neglect executive pay governance expose themselves to financial and reputational risks.
A lack of transparency can lead to shareholder dissatisfaction, regulatory scrutiny, and internal disputes that can destabilise the organisation.
Worse still, failure to manage executive compensation effectively can result in talent retention problems, loss of investor confidence, and potential legal challenges.
If your board is not following these governance principles, your company could be heading for a pay governance disaster.
Now is the time to take control, enforce accountability, and ensure that executive pay structures are fair, transparent, and aligned with long term business objectives.
A strong governance framework for executive pay is not just a good practice — it is an essential component of responsible corporate leadership.
- Nguwi is an occupational psychologist, data scientist, speaker and managing consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and HR consulting firm. https://www.linkedin.com/in/memorynguwi/ Phone +263 24 248 1 946-48/ 2290 0276, cell number +263 772 356 361 or e-mail: [email protected] or visit ipcconsultants.com.
