Remuneration of Share Company Directors in Ethiopia: The Law and the Practice

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Addis Ababa University


Remuneration of Share Company Directors is one mechanism of aligning the interests of a Company and its Directors. Companies need and are also required to ensure that the level of remuneration shall be sufficient to attract, retain and motivate the caliber of directors needed to run the companies successfully while the makeup should be so structured as to knot company and individual performance. It would be impossible to draw perfect line of ‘fair and equitable’ remuneration of Share Company Directors, neither too low nor excessive, that would fit all Companies. Because determining remuneration will depend on many variables like individual directors, market and Company specific conditions, in the abstract. Nevertheless this does not mean totally unattainable. The safe and less controversial mechanism, as experience of other jurisdictions and international best practice reveal, is measuring directors’ remuneration against recorded and established standards and principles. In view of that legislatures and regulators set their own minimum and maximum standards to be complied by companies in determining the level of pay. These include, but not limited to, establishing independent remuneration committee, requiring remuneration policy and strategy, mandatory disclosure and shareholder ‘say on pay’ with compulsory or advisory shareholder approval, performance related pay, efficient and cost-effective remuneration taking in to account company’s long and short term strategy. Remuneration of Share Company Directors is regulated according to the Commercial Code in Insurances and non-financial Share Companies, but pursuant to the Directive No.SBB/49/2011 in banks. In general, remuneration of non-financial Share Company Directors is left unregulated whereas it is strictly regulated for director of banks. This paper argues that both extremes, i.e. strict regulation and leave unregulated, have negative repercussion on the governance of Share Companies in particular and economic growth and development of Ethiopia in general. In support of this assertion the paper presents some empirical evidences and arguments of corporate governance veterans, academicians, relevant government officials and shareholders. Consequently the paper attempts to show degree of impact of inadequacy of the legal and institutional framework and practical challenges of remuneration of Share Company Directors relying on the empirical data and literatures on remuneration.



Share Company Directors in Ethiopia, Law and the Practice