The income inequality between senior executives and workers in their organisations can now be revealed after an investment bank yesterday published data showing the big gap between what company heads and the average worker below them take home.

According to the new report, the average pay gap between Chief Executive Officers (CEOs) and workers widened last year with the honchos earning 30.4 times what the average employee in the same organisation was paid. 

The revelation comes at a time when ordinary Kenyans are facing tough times with the new tax measures introduced in the Finance Act 2023, which President William Ruto signed into law on Monday. The new tax measures take effect from Saturday.

Only companies listed at the Nairobi Securities Exchange were considered for the survey, which reveals that although employee pay has been increasing over the last ten years, this has not reduced the gap between their pay and that of executives.

The study by Standard Investment Bank shows that last year the median pay gap between CEOs and workers increased to 30.4 times, up from 28.1 times in 2021.

“Executive pay and employee share-based compensation continues to be a key topic among various stakeholders, gathering steam recently following the release of various listed firms’ 2022 annual reports,” says the survey that is likely to ignite debate about income inequality.

It shows that banks recorded the widest margins in pay gaps between the top executives and workers, followed by manufacturing companies. These were followed by an investments and real estate company and two companies in the energy sector.

“When we considered CEO compensation as compared to average employee pay at around 30 times, it is not particularly outsized compared to global corporations,” the report says. “We think the differential is mostly based on stock-related components of compensation, which constitutes a large and increasing share of total compensation globally.”

Although this may act as a balm that Kenya is following global trends, it still raises questions about compensation in the formal sector especially given that the Ruto administration has moved from fixed figures in tax computation to percentage of gross pay.

Widest gap

The study considered the top 13 traded counters at the Nairobi Securities Exchange over the last three months. These were picked because they accounted for over 90 per cent of traded activity at the bourse, meaning there was both investor and public interest in their performance and also in their role in contributing to national wealth, also known as the Gross Domestic Product.

The 13 comprise commercial banks, Safaricom, EABL, BAT, Centum and the power utilities. Of these, banks recorded the biggest pay gap between the CEO and the average employee.

Cooperative Bank had the widest gap in compensation, with the CEO earning 135.6 times the average employee. Co-op was followed by KCB, where the CEO earns 118.5 times the average employee’s salary.

Equity Bank had the third highest pay gap with the CEO earning 71.6 times the average employee.

BAT, KenGen and East African Breweries Limited (EABL) had the lowest pay gaps between the CEO and the average employee with CEO earning 4.7, 6.3, and 17.6 times the average employee respectively.  

The pay for CEOs of listed companies is public information and according to filings and company reports published ahead of annual general meetings.

Staff costs are also public records, making it comparatively possible for finance experts to extrapolate the average pay gaps.

CEO salaries range anywhere from Sh300 million to Sh400 million per year for listed banks.

On average, median employee pay for the 13 select companies stood at Sh248,000 last year, representing a 73 per cent increase from Sh144,000 in 2011, when many companies had reduced workers’ pay to mitigate against low business caused by the Covid-19 global pandemic.

An increase in employee pay, therefore, can be interpreted as a signal that many listed companies had either restored pay to pre-Covid rates or increased from the reduction caused by the pandemic.

According to the report, nine out of 13 firms increased CEO remuneration in 2022. 

“The report explored various performances — pay and return metrics (CEO compensation, share price, return on average equity and dividend per share — to provide a balanced approach in providing insight on the ongoing dialogue surrounding executive pay and employee share-based compensation,” says the report.

Taxation measures

The survey comes less than a month after the National Treasury released data showing that 38.6 per cent of Kenyans were classified as poor in 2021. According to this data, any person or worker earning less than Sh7,200 in urban areas and less than Sh4,000 in rural areas was classified as poor.

It also comes against the background of debate over taxation measures which take effect in July.

These include the introduction of the 1.5 per cent housing levy to be deducted from the gross pay of former sector employees and proposals to increase employee and employer contribution to the National Social Security Fund and the National Health Insurance Fund among other measures the government intends to use to raise revenue.

The deductions are expected to reduce workers’ disposable incomes at a time when the inflation rate stands at 8.78 per cent as of May,  a reduction from 9.2 per cent in December.

However, though the cost of living has eased in recent months, according to government data, this could be reversed, especially for workers, the stance taken by the Central Bank of Kenya’s Monetary Policy Committee, which increased the base lending rate to 10.5 per cent, up from the previous 9.5 per cent.

This is set to raise the cost of credit, making it harder for Kenyans to borrow or comfortably repay their loans, which will in turn affect their ability to grow their businesses and improve the quality of life.

On the positive side, there has been an increase in the number of jobs, especially in banking. “The banking sector recorded its fastest growth in employment in over ten years in 2022,” says the SIB report. 

“Growth in support staff outpaced growth in managerial staff in 2022, rising 18.2 per cent year-on-year compared to 5.9 per cent year-on-year respectively likely pointing to branch expansion by some lenders”. That means banks, on average, created more opportunities for unskilled