Chinamasa fails to address the issue of hefty salaries for CEOs

Finance Minister Patrick Chinamasa who raised a lot of speculation yesterday when he said he would address the issue of hefty salaries for chief executives of parastatals and state enterprises today in his mid-term review policy statement poured cold over the issue when he said this might only be addressed at the end of October.

The government ruled earlier this year that all salaries of chief executives should be pegged at $6 000 following an outcry that their salaries were too exorbitant. The head of Premier Medical Aid Society, Cuthbert Dube , was reported to be earning more than $500 000 a year. But most of the CEOs ignored the government ruling.

Asked what the government was doing about this, Chinamasa told members of the Lower House yesterday that he would address the issue today.

But he scraped through the problem today saying a review of the legal framework to deal with concerns over public entities management of public resources, poor governance arrangements, deployment of resources to non-priority areas at the expense of service delivery will have to be carried out first.

This would also entail introduction of a Governance Code for all parastatals.

“The Remuneration Policy Framework for State Enterprises, Parastatals and Local Authorities to address remuneration anomalies is being finalised and will be in place by end October 2014,” he said.

The Framework will:

Classify public entities into various categories;
Outline the remuneration principles for all categories of public entities;
Require each Board to enter into a Performance Agreement with the Chief Executive Officer; and
Require the shareholder to enter into a Performance Agreement with the Board, based on specific performance targets.
Chinamasa said that the Auditor-General was engaged to carry out audits whose outcome will inform on the appropriate remedial measures to be instituted to establish remuneration levels of management, as well as of Board members.

Here is an extract of Chinamasa’s statement on the issue:

Public Enterprise Reform

428. Mr. Speaker Sir, the outrage that followed the revelation of financial irregularities at Premier Service Medical Aid Society (PSMAS) necessitated follow up interventions by Government to broaden the necessary clean up exercise to other public enterprises.

429. This included the establishment of a Cabinet Committee on State Enterprises and Parastatals Development dedicated to spearheading appropriate corrective measures in conjunction with line Ministries.

430. Mal-administration challenges at our public enterprises have meant that they have remained a drain on the fiscus.

431. This compares negatively to similar entities in economies such as China, in which, although the State is a shareholder, public enterprises contribute significantly to economic development and are managed efficiently.
Legal Framework

432. In dealing with challenges at our public enterprises, review of the legal framework governing parastatals would be unavoidable.

433. Review of the legal framework will be necessary to deal with concerns over public entities management of public resources, poor governance arrangements, deployment of resources to non-priority areas at the expense of service delivery and the entities core mandates.

434. This, Mr. Speaker Sir, will also entail introduction of a Governance Code for all parastatals.
Remuneration

435. Furthermore, the Remuneration Policy Framework for State Enterprises, Parastatals and Local Authorities to address remuneration anomalies is being finalised and will be in place by end October 2014.

436. The Framework will:

Classify public entities into various categories;
Outline the remuneration principles for all categories of public entities;
Require each Board to enter into a Performance Agreement with the Chief Executive Officer; and
Require the shareholder to enter into a Performance Agreement with the Board, based on specific performance targets.

Audits

437. Already, Mr Speaker Sir, the Auditor-General was engaged to carry out audits whose outcome will inform on the appropriate remedial measures to be instituted to establish remuneration levels of management, as well as of Board members.
Public Finance Management Act

438. Furthermore, to enhance the effective management of and accountability for public resources, the Public Finance Management Act will, by year end, be reviewed to enhance Treasury’s financial oversight of State enterprises and local authorities through incorporating additional review and reporting provisions.

439. The proposed amendments will include:-

Requiring State enterprises and local authorities to submit their corporate and financial plans to Treasury not later than three months before the beginning of each fiscal year;
Mandating Treasury to review the budgets of public entities to ensure that deployment of resources is consistent with set priorities and service delivery objectives/mandates;
Empowering the Minister of Finance & Economic Development to direct entity boards to amend their corporate plans where necessary to align with the national development agenda;
Incorporating provisions requiring State enterprises and local authorities to submit quarterly financial statements and performance reports not later than thirty days after the end of the respective quarter. The financial information and commentary will facilitate assessment of performance against budget and identify the causes of major variances to allow for timely policy interventions; and
Strengthening the enforcement arrangements to effectively deal with cases of non-compliance.

440. Government will also use the review to align other provisions of the PFM Act with the new Constitution.

Parastatal Investment Opportunities

441. Mr. Speaker Sir, there are public entities where Government will take advantage of joint venture opportunities to unlock value in some enterprises.

442. In this regard, there are opportunities to enter into joint ventures to utilise idle CSC facilities and ARDA land, with partners required to bring in both capital and management, as well as access to technology and markets.

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