In 2021, the top-earning CEOs of listed banks in Kenya were paid a total of Ksh 1.4 billion, with the highest-paid CEO, Gideon Muriuki of Co-operative Bank, taking home Ksh 397.1 million. This is significantly higher than the average Kenyan worker’s salary, which is around Ksh 25,000 per month. Some other statistics:
The highest-paid CEO in 2022 was James Mwangi of Equity Group, who earned Ksh 341.4 million. His compensation package included a Ksh 194.9 million basic salary, a Ksh 122.7 million performance bonus, and other benefits.
The CEO of KCB Group in 2022 was Joshua Oigara. As the group CEO, he earned Ksh 265.9 million. His package included a Ksh 140.6 million basic salary, a Ksh 106.4 million performance bonus, and other benefits.
The CEO of Absa Bank Kenya, Jeremy Awori, earned Ksh 210.6 million in 2022. His package included a Ksh 137.5 million basic salary, a Ksh 55.2 million performance bonus, and other benefits.
In order to place this conversation in context consider that the average CEO salary for listed banks in Kenya was Ksh 163 million in 2022, and that the CEO salary gap between the top earner and the average earner was over 100% in 2022.
Now – depending on who you ask, the justification for the high Bank CEO salaries is a complex and highly debated contentious topic. It comes with arguments on both sides.
Is there a justification for Bank CEOs high salaries?
The first justification offered is Market competition. Proponents argue that CEOs of large banks are in high demand with a limited talent pool. They argue that therefore their compensation needs to be competitive with other major corporations and international banks to attract and retain the best talent.
Also Read: How and Why Kenyan Banks Are Consistently Making Profits
Another justification is Performance-based pay. It is common knowledge that many CEO compensation packages include significant performance-based bonuses and stock options, tying their earnings directly to the bank’s success. Proponents argue that this aligns their interests with shareholders and incentivizes them to drive strong financial performance.
Other proponents argue that leading a bank is complex and comes with a lot of responsibility. They contend that leading a large bank involves immense responsibility and complex decision-making, managing millions if not billions of shillings, navigating regulatory hurdles, and overseeing countless employees, often spread regionally. Proponents argue that this role deserves a commensurate salary.
High Risk: It could also be argued that high salaries form a deterrent against CEOs supporting mismanagement of depositor’s funds. Consider for a moment a bank CEO who has to approve a large loan amount. This requires a credit approval that if the CEO is not properly compensated, could lead to collusion between the CEO and approving functions within the bank and ultimately higher non-performing loans (NPLs)
International standards: Other reasons put forward include the fact that more and more banks are operating in a regional and often globalized market. CEO compensation may be influenced by international standards, where salaries tend to be higher. The also argue that high CEO pay can ultimately benefit shareholders if it leads to increased profitability and shareholder returns. They believe that strong leadership can drive growth and success, justifying the higher salaries.
What do those that argue against high salaries say?
They argue that exorbitant CEO salaries exacerbate income inequality, as they create a significant wealth gap between themselves and average workers. They also insist that the focus on short-term performance through bonuses and stock options may incentivize CEOs to take excessive risks to boost profits in the short run, potentially jeopardizing the bank’s long-term stability.
Many portend that CEO’s actually have limited impact to the business. In their view, the bank’s overall performance is more dependent on broader market forces, the work of ExCo and the banks’ employees in general. To prove their point, they point to cases of bank CEOs receiving high salaries despite poor company performance or even financial crises caused by their decisions. They argue that such pay is not justified when it is not tied to actual performance and success.
Also Read: CBK Governor Explains Reason Banks Reintroduced Mobile Bank Charges
They also argue that the emphasis on performance-based pay can incentivize CEOs to focus on short-term profits at the expense of long-term sustainability and responsible risk management. They believe that this can lead to reckless behavior and financial instability.
Finally, there is the issue of lack of transparency. The complexity of CEO compensation packages, with bonuses, stock options, and other perks, can make it difficult for shareholders and the public to understand how pay is determined and whether it is justified. Critics call for greater transparency and accountability in executive compensation.
Do you know what your bank CEO earns? Is it aligned to the public good?
Critics argue that high bank CEO salaries do not align with the public good, as banks play a crucial role in the economy and their failures can have severe societal consequences.
Ultimately, the justification for the high Bank CEO salaries can be viewed from either lens. There is no single definitive answer that would rest the issues either way.
