Power of remuneration, nominations committee

Bothwell P. Nyajeka

FROM my experience serving on corporate boards, the committee with the shortest agenda is the remuneration and nominations committee. Its agenda is usually concise, often covering executive remuneration, board appoint­ments, and a handful of people related matters.

Yet, despite having one of the shortest agen­das, I have found it to be one of the most impactful in the boardroom. This is because the committee influences who sits around the board table, who occupies the chief executive’s office, and the in­centives that drive behaviour throughout the or­ganisation.

In my opinion, the committee determines the quality of leadership and culture within the com­pany. It therefore has a direct influence on cor­porate performance, shareholder value and long term sustainability.

The nominations function of the committee, sometimes referred to as the appointments func­tion, is responsible for recruiting and recommend­ing new directors and ensuring that there is an impartial and objective mechanism for selecting board members. This helps prevent excessive in­fluence by either the chief executive or the board chairperson in the appointment process.

The remuneration function of the committee develops policies relating to compensation and ensures that remuneration structures do not ben­efit management at the expense of shareholders and other stakeholders. Traditionally, the remu­neration committee focused on executive pay and board fees. Today, however, the mandate has expanded significantly to include employee wel­fare, industrial relations, organisational culture, employee engagement, wellness and succession planning.

The importance of the remuneration and nom­inations committee is recognised in the Compa­nies and Other Business Entities Act, the Zim­babwe Stock Exchange listing requirements and Zimbabwe’s Code of Corporate Governance, all of which recommend the establishment of the committee composed primarily of independent non-executive directors. This is done to eliminate conflicts of interest and guarantee objective, mer­it-based decision-making regarding executive pay and board appointments.

The first source of the committee’s power lies in board nominations. The board serves as the bridge between the company and its external environment. It is responsible for providing strategic direction, overseeing management and ensuring successful strategy execution.

The remuneration and nominations committee should continuously assess the board’s skills profile against the or­ganisation’s strategy. Where gaps exist, the committee should ensure that competent directors are recruited to address them.

Equally important is succession planning. Many organi­sations, particularly family-owned businesses, have no for­mal CEO or executive succession plans. Leadership transi­tions are often treated as future problems until a crisis occurs. One of the committee’s greatest contributions is the institu­tionalisation of succession planning. By identifying future leaders, developing talent pipelines and ensuring continuity of leadership, the committee helps the organisation survive beyond its founder, current CEO or key executives.

The second source of the committee’s power lies in remu­neration design. Zimbabwe’s dual-currency environment has fundamentally challenged traditional remuneration models. The committee’s responsibility is to design remuneration pol­icies that balance three competing objectives: competitive­ness, affordability and fairness. This requires moving beyond simplistic market payroll/salary benchmarking exercises. An effective committee should consider cash generation, oper­ational efficiency, shareholder returns and value creation in real economic terms when designing remuneration structures rather than relying solely on accounting profits.

One of the increasingly sensitive issues in corporate Zim­babwe is the widening gap between executive remuneration and junior employee/worker pay.

There has been a growing trend where executive pack­ages are fully indexed to United States dollars while many junior employees/workers continue to receive remuneration that is either partially indexed or largely denominated in lo­cal currency. The result is a significant disparity in earnings levels across organisations. The committee must understand how the company’s executive-to-worker pay ratio compares with industry peers and be prepared to explain why such dis­parities exist.

This becomes even more important when remuneration decisions coincide with cost-cutting exercises, retrenchments or workforce restructuring initiatives. Employees and share­holders increasingly expect boards to demonstrate fairness and consistency.

The committee must also ensure that pay is genuinely linked to performance. Performance targets should be clear, measurable and understood by the full board. Incentive pay­ments should be supported by objective evidence showing that performance outcomes were achieved. The committee should be able to explain why specific performance metrics were selected and why the targets represented meaningful stretch rather than easily achievable outcomes.

A further challenge confronting many Zimbabwean com­panies is executive retention during periods of financial dis­tress.

In sectors experiencing prolonged downturns, commit­tees often face a difficult dilemma. They may need to retain critical executives capable of leading a turnaround while the company’s reported financial performance remains weak. In such situations, remuneration decisions must be transparent and carefully communicated. The committee should clearly explain why retention-focused adjustments have been made and how they support long-term shareholder interests. Fail­ure to do so can quickly evolve into a governance and cred­ibility problem.

Another area where companies frequently destroy share­holder value is through poorly negotiated executive sever­ance arrangements. Many of the controversial executive exit packages that attract public criticism can be traced back to contractual provisions approved years earlier without ad­equate scrutiny. The committee should therefore regularly review executive contracts, notice periods and severance package formulas to ensure they remain appropriate and de­fensible.

The third source of the committee’s power lies in its influ­ence over organisational culture and workforce performance. Corporate performance is ultimately delivered by people. As a result, the committee’s responsibilities extend beyond ex­ecutive remuneration to broader issues affecting employee engagement, morale and productivity.

One of the growing challenges in Zimbabwe is the issue of salary arrears. As financial pressures intensify, many or­ganisations have fallen behind on salary payments. The con­sequences are often visible in declining employee morale, reduced productivity and the misuse of company resources as employees seek alternative means of generating income.

Employees who are uncertain about when they will be paid rarely perform at their peak. The committee should therefore ensure that management prioritises employee ob­ligations and develops realistic plans for addressing salary arrears where they exist.

Equally important is communication. Where a compa­ny is experiencing financial distress, employees should be informed honestly about the challenges facing the business and the measures being taken to address them. Silence often creates anxiety, mistrust and damaging rumours. In some

circumstances, difficult conversations may be necessary, including discussions around temporary salary reductions, restructuring programmes or even corporate rescue proceed­ings.