The PECG Bill and ZimCode
THE Public Entities Corporate Governance (PECG) Bill, henceforth the Bill, is a deliberate effort by the Government of Zimbabwe to instil good corporate governance practices in public entities.
Once the Bill is passed into law it will make it mandatory for entities to comply with all its directives. This is a step further from the ZimCode which propagated for good corporate governance in entities but was premised on an “apply or explain” basis which gave room for entities to ignore its recommendations.
An important aspect addressed by both the Bill and the ZimCode is the remuneration of non-executive directors of entities. Executive remuneration occupies an important space in corporate governance, seeing that some of the corporate scandals emanated from this area it is wise to have guidelines that are adhered to by all public entities. Stories are constantly told of some boards who met as much as forty eight times in a single quarter as a way of accruing board sitting fees and of some non-executives who demanded the same allowances and benefits being awarded to executive members of the company they directed. All these are signs that there is need for guidance in this area.
The ZimCode addresses remuneration of board members and senior managers in principles 161-168. It highlights that remuneration of board members should be fair in order to enhance motivation, attract people of high calibre but should be affordable to the company.
Clause 12 of the Bill on remuneration of non-executive members of public entities mirrors the ZimCode in highlighting that remuneration should be fair and appropriate with regards to the members’ qualifications and experience and functions they are expected to perform. It also highlights the need for consistence between different public entities, “the Minister, may formulate standard sitting allowances, provisions for out-of-pocket expenses and other payments or benefits compatible with service as a non-executive board member, which standards shall be applicable to board members of all public entities or any particular class of such entities”.
Apart from maintaining same standards of non-executive remuneration between different public entities, the Bill also indicates that consideration has to be taken to compare these fees with counterparts in well managed companies in the private sector who perform similar functions. The Bill also emphasises that public entities concerned should carry out their operations economically without sacrificing their efficiency and effectiveness. This is similar to what principle 166 of ZimCode emphasise as the need to ensure that remuneration is designed to promote long term success of the company.
While the ZimCode had highlighted the need for shareholder to approve board member remuneration, the Bill has given the Line Minister responsibility in this area. Accordingly, in coming up with standards of remuneration for public entities the Minister in consultation with the Minister of finance formulate standards of remuneration that are consistent with this Bill once it becomes law, and the entity’s enabling instruments.
The Minister may from time to time amend or replace standards of remuneration for non-executive members of public entities according to the guidelines provided in this Bill, and the amendments have to be approved by Cabinet. The amendments or replacement can be inspected by members of public free of charge and an electronic copy should also be made available for inspection on the Ministry’s website. In this way the Bill has taken a long lead towards disclosure and transparency which are necessary tools for good corporate governance.
Clause 14 of the Bill also highlights restrictions on remuneration of board members of public entities,
“The Minister, with the approval of the Minister responsible for finance, and after consultation with the line Minister concerned, may by notice published in the Gazette specify the amount that may be received, by way of remuneration, allowances and other benefits, by members of the board of any public entity”.