22 May 2014

Zimbabwe: Deadlock Over CEOs' Salaries

Photo: New Zimbabwe
Top earners in the country's parastatals and local authorities.

TWO months after discussions to trim excessive salaries earned by chief executive officers (CEOs) of State-owned enterprises started, Cabinet is still to finalise the deliberations, raising fears that it may opt for the easy way out, which is to go quiet on the issue. In March, Cabinet declared that salaries for CEOs of State-run parastatals and local authorities should not exceed US$6 000.

This followed shocking revelations that the Public Service Medical Aid Society (PSMAS) was paying its CEO, Cuthbert Dube, over US$500 000 per month. The saga, now known as salarygate, first erupted when it was reported that the CEO of the Zimbabwe Broadcasting Corporation, Happison Muchechetere, currently on suspension, was taking home in excess of US$40,000.

Since then, the exposé has had a domino effect on a number of other parastatals and local authorities, prompting government to institute measures to arrest the rot. What has, however, infuriated Zimbabweans is that the fiscus is currently bleeding because of the subsidies it is dishing out to support these loss-making enterprises. At the same time, service delivery has deteriorated in most urban and rural local authorities because the bulk of the revenue being collected from residents is being spent on salaries.

While government had promised to expeditiously put in place a corporate governance and remuneration policy framework to give guidelines on how parastatals and local authorities should pay their executives, it has not done so two months after the negotiations begun. This is certain to infuriate Zimbabweans even further. The Cabinet Committee on State Enterprises and Parastatals Development, chaired by Finance Minister, Patrick Chinamasa, is still to finalise the framework. Information gleaned from various sources indicates that the CEOs were still earning salaries they were earning in February this year.

CEOs who spoke to the Financial Gazette this week said despite enquiring about the new guidelines, no formal communication has been sent to them. "As of now, operations and remunerations are still the same; we are awaiting formal communication from government," one CEO said. The deputy secretary in the office of the President and Cabinet, retired colonel Christian Katsande, last week said an official position would be made public once negotiations have been finalised.

"We cannot pre-empt anything at present, but an official message will be made once negotiations have been concluded," he said.

According to the Cabinet Committee on State Enterprises and Parastatals Development, the highest paid CEO was from PSMAS who earned US$545 499 including benefits while the least paid pocketed US$3 025, including benefits. If the new salary structure is implemented, about US$1,17 million would be saved monthly. A comprehensive analysis by government revealed that US$600 million was pocketed by individuals who sat on boards or were CEOs and senior managers of the country's State enterprises since 2009 and US$133 million was lost last year alone.

Figures from the Cabinet Committee showed that State enterprises, parastatals and local authorities were paying out an untaxed total amount of US$85 million since dollarisation, a move which was largely designed for tax evasion purposes. Computations by tax experts show that heads of Zimbabwe's mostly insolvent parastatals and local authorities have been diverting a combined US$21 million in annual incomes to untaxed benefits to dodge the taxman.

With the anomaly dating back to when dollarisation was adopted, this translates to more than US$85 million from 2009 to end of 2013. Addressing journalists recently, Chinamasa said government had learnt that in most cases, the parastatals and local authorities raised their utility and service charges in order to finance their high salaries. He said there was strong suspicion that the parastatal bosses were likely to have evaded taxes by financing higher benefits relative to basic salaries. Government also said that in the case of bonuses, the bosses would only get the 13th cheque based on performance and not as an automatic entitlement subject to the implementation of the new salary framework.

"Appropriate action will be made to recover the benefits awarded illegally and there will be consequences naturally and those who did things immorally and unprocedurally, necessary action has to be taken."

Chinamasa could, however, not give a timeline to the exercise, adding that the problem started with the migration from the Zimbabwe dollar to the United States dollar resulting in people adopting a hyperinflationary environment mentality. He said the government was not ruling out criminal charges against those involved, saying such conduct might fall under the ambit of corruption. Asked why it took five years for government to act, Chinamasa said: "There was too much quarrelling in the inclusive government and we could not focus our energy on anything."

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