Executive pay raise: Does it give necessary motivation?

How much leaders get paid is rarely far from global headlines these days, and with good reason. Even as many employees have experienced pay freezes or at best minimal salary increases for several consecutive years, executive pay has continued to rise worldwide. Rwanda is no exception to this, and the new Rwandan Stock Exchange has the potential to add a layer of complexity to the relationships between shareholder value, financial performance and executive pay. This comes against a backdrop in which the country’s corporate landscape is evolving at an exponential rate. Competition from the national, regional and international markets for staff as well as customers is raising and companies are adopting increasingly complex strategies to survive and thrive. Often, a new market entrant will poach the few senior executives of the country from its rivals. The natural way of achieving this is pay rise. One positive outcome of the seemingly endless economic crisis in the developed world is a renewed focus on executive pay. The old model, which has done nothing to prevent economic hardship across the West, is increasingly being challenged. Can Rwanda learn from the mistakes of others to shape principles of executive pay that encourage sustainable success? The entire debate about executive pay should answer the following basic questions: Are shareholders getting what they deserve? What levels of executive pay are acceptable for society? Are the packages motivating for the individuals?Worldwide, performance-based pay has become almost ubiquitous and Rwanda follows the trend. Shareholders put pressure on the companies to link performance and pay (or bonus). Does it really motivate the executives? What is the risk appetite of our executives?In Africa, the title almost always comes with more responsibilities in the family circle (the circle can be quite large in some countries). It is, therefore, not surprising to see that the African executives are the most risk averse. They clearly prefer fixed benefits to variable. We also see a generational difference between the X and Y generation. Young executives seem to have adopted a more “western” way of life and are more inclined to take big risks in a shorter period. They also respond less to the pressure of the family and society in general. Performance-based bonus/pay logically works better for risk-taker than risk averse. My objective here is not to preach the abolition of the incentives, but rather highlight the fact that companies should assess if the result in term of improved performance is commensurate with the investment. More than anything, companies should keep their packages simple.Complexity and ambiguity destroy value. Any human being becomes suspicious and withdraws his trust once doubt crops up. In time, short term incentives seem more appreciated. Culturally, in our country, this statement is even more accurate. The longer executives have to wait, less the worth. This could sometimes conflict with the need for sustainable strategies. Shareholders are as interested in value-addition as in sustainable growth. The solution, often found by remuneration committees, is to link some bonuses with long-term objectives. A fair compromise needs to be found between these two antagonistic objectives.Fairness is a strong element of the remuneration. But the concept behind fairness varies globally. Is fairness the absolute value in terms of money, the comparison within the company or the comparison with the competitor? In Rwanda, the increasing attraction for salary surveys is there to prove that fairness is as important within the company than in the same sector. Once the Pandora box of executive pay is open, it is difficult to close it without challenging our prior beliefs. There is no one-fit-all in terms of executive remuneration. The differences between continent, countries and sectors are such that each organisation should first start by assessing its own population and align its strategy in terms of remuneration to its overall strategy. Money is only part of the deal. Recognition, self actualisation are also part of the motivators. This should always be kept in the radar of all remuneration committees.The writer works with PricewaterhouseCoopers Rwanda