An Overview Of The Current Directors’ Remuneration Trends In Nigeria

In every economy, issue of directors’ remuneration stands as a critical aspect of corporate governance, influencing company performance, investor confidence, and regulatory compliance. This paper presents an overview of the current trends in directors’ remuneration in Nigeria. It evaluates key components such as salaries, bonuses, stock options, and other benefits. It further highlights sectoral variations, the increasing influence of performance-based incentives, and the growing role of shareholder activism in shaping executive pay structures. Going on, the study examines challenges such as regulatory inconsistencies, concerns over excessive remuneration, and economic factors affecting pay structures. A comparative analysis with global best practices offers insights into potential reforms for enhancing transparency, accountability, and fairness in Nigeria’s corporate sector. The paper concludes with recommendations for aligning directors’ pay with sustainable corporate growth and governance standards.

Introduction

Directors’ remuneration has become a crucial aspect of corporate governance, influencing organizational performance, executive motivation, and shareholder confidence. In Nigeria, as in many other economies, the issue of directors’ pay has generated significant debate due to concerns about fairness, corporate accountability, and regulatory compliance¹. The determination of directors’ compensation involves several factors, including company size, financial performance, industry standards, and legal frameworks. With the increasing globalization of business and evolving corporate governance regulations, understanding the trends in directors’ remuneration has become more important than ever². The Nigerian corporate landscape is shaped by various factors, including regulatory frameworks, economic conditions, and corporate governance codes set by institutions such as the Financial Reporting Council of Nigeria (FRCN) and the Securities and Exchange Commission (SEC), which provide guidelines aimed at ensuring fair, transparent, and performance-linked remuneration structures. However, despite these regulations, discrepancies in pay scales, lack of adequate disclosure, and conflicts of interest in remuneration decisions remain persistent issues³. 

Moreover, trends in directors’ remuneration in Nigeria often mirror global shifts, such as the move towards performance-based pay, stock options, and long-term incentive plans⁴, but Nigeria’s unique economic challenges, such as inflation, currency devaluation, and regulatory uncertainties, impact how companies structure executive compensation⁵. Understanding these dynamics is essential for ensuring that directors’ remuneration aligns with corporate sustainability, ethical governance, and shareholder interests. Recent trends in directors’ remuneration in Nigeria reflect a global shift toward performance-based pay, equity-based incentives, and increased regulatory oversight, with corporate governance codes such as the Nigerian Code of Corporate Governance (NCCG) 2018 and sector-specific regulations playing a significant role in shaping remuneration structures. 

However, challenges such as income disparity, excessive executive pay, and weak enforcement mechanisms persist, raising questions about the effectiveness of current policies in balancing corporate interests and stakeholder expectations.

Meaning of Director and Directors’ Remuneration

Who is a Company Director?

A director of a company is an individual appointed to manage and oversee the affairs of the company. They act as fiduciary agents, meaning they are entrusted with the responsibility to act in the best interests of the company and its shareholders. Directors are tasked with making strategic decisions, ensuring compliance with legal obligations, and safeguarding the company’s assets. Under Nigerian law, a company director is defined primarily by the Companies and Allied Matters Act (CAMA) 2020 as “a person duly appointed by the company to direct and manage the business of the company⁶.” This definition establishes that a director holds a formal appointment and is responsible for the governance and operation of the company. The Act classifies directors into various categories, including: Executive Directors (involved in daily operations), Non-Executive Directors (who provide oversight without managing daily operations), Independent Directors (who do not have financial or personal ties to the company).

Furthermore, Section 305 of CAMA 2020 imposes fiduciary duties on directors, stating that a director shall act in good faith; in what he believes to be in the best interest of the company as a whole. The Nigerian courts have clarified the role, responsibilities, and liabilities of directors in various cases. In Longe v First Bank of Nigeria Plc.⁷), the Supreme Court of Nigeria emphasized that directors are trustees of the company’s assets and are obligated to act in good faith. The court held that a director is an agent of the company but stands in a fiduciary relationship with the company and must not use his position for personal gain. In Okeowo v Migliore⁸ the Supreme Court stated that directors must exercise their powers for the benefit of the company and not for an improper purpose.

What is Directors’ Remuneration?

Directors’ remuneration is a crucial factor in corporate success, influencing leadership quality, company performance, and investor confidence. A balanced approach, considering both financial rewards and governance principles, ensures directors are motivated while maintaining fairness and accountability. Directors’ remuneration refers to the total financial and non-financial compensation that company directors receive for their roles in managing a company. It typically includes salaries, bonuses, share options, pensions, and other benefits. Directors’ remuneration serves as an incentive for effective corporate governance and performance, aligning directors’ interests with those of shareholders⁹. 

Legal Framework on Directors’ Remuneration

The primary source of law that governs executive compensation arrangements in Nigeria is the CAMA 2020, which applies to all companies incorporated in Nigeria. The Nigerian Code of Corporate Governance, 2018 (the NCCG)¹⁰, also provides directives on the remuneration of directors. Additionally, there are other industry-specific regulations that contain provisions on directors and senior management compensation arrangements and remuneration. They include: the Code of Corporate Governance for Banks and Discount Houses , 2014 (the CBN Code)¹¹, which applies to banks and discount houses in Nigeria; the Code of Corporate Governance for Public Companies in Nigeria, 2011 (the SEC Code)¹²), which applies to public companies and companies seeking to raise funds on the capital market through the issuance of securities or seeking listing by introduction; the Code of Corporate Governance for the Insurance Industry in Nigeria, 2021 (the NAICOM Code)¹³), which applies to all insurance and reinsurance companies; the Code of Corporate Governance for licensed pension operators, 2008 (the PENCOM Code)¹⁴), which applies to pension fund administrators and pension fund custodians.

Directors’ Remuneration Under CAMA 2020

The remuneration of the directors is determined by the company in general meeting and such remuneration is deemed to accrue from day-today¹⁵. The directors may also be paid travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors, committee of the directors, general meetings of the company or in connection with the business of the company¹⁶. Where remuneration has been fixed by the articles, it is alterable only by a special resolution.

Perhaps, a company is not bound to pay remuneration to directors, but where the company agrees to pay, the directors shall be paid such remuneration out of the fund of the company¹⁶. The amount of remuneration is a debt from the company so that if directors take office on the basis of the articles, they shall be able to sue the company on account of the debt or prove it in liquidation¹⁶. Moreover, a director who receives more money than he is entitled to, is guilty of misfeasance and is accountable to the company for such money¹⁶ and the remunerations of directors is apportionable¹⁶.

Directors’ Remuneration Under Nigerian Code of Corporate Governance, 2018

Principle 16 of the NCCG 2018 provides that the board should ensure that the Company remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term. The Board should assume responsibility for the governance of remuneration by setting the direction for how remuneration should be addressed on a Company-wide basis¹⁷. The Board should also approve policies that articulate and give effect to its direction on fair, responsible and transparent remuneration¹⁸. Perhaps, the remuneration policy should be designed to attract, motivate, reward and retain high performing human capital¹⁹. In addition, the NCCG provides that the board should periodically confirm that the implementation and execution of the remuneration policy achieves its objectives²⁰.

From the forgoing, a company, as a matter of general principle, is not bound to pay remuneration to directors. However, it can determine what to pay through the articles of association¹⁶ or remuneration for NEDs should be fixed by the board and approved by shareholders in the general meeting²¹.  Such amount and such forms of remuneration should be paid out of the fund of the company²². Moreover, any amount of remuneration accruable to the director is a debt of the company to the director and entitles him to an enforceable legal action¹⁶. On the flipside, any director who received more money than he is entitled to, is guilty of misfeasance and is accountable to the company of such money¹⁶. 

The recommended practices in the NCCG has been judicially noted in several cases by the Courts. In Longe v First Bank of Nigeria Plc,(((2010) 6 NWLR (Pt 1189) 1)) the Supreme Court of Nigeria emphasized the fiduciary duty of directors to act in the best interest of the company. The court noted that directors owe a duty of loyalty and must not use their position to unjustly enrich themselves at the expense of the company and its shareholders. This ruling reinforces the principle that directors’ remuneration must be reasonable and justified. The Court had earlier expressed the same concern in Savannah Bank Ltd v Ajilo²³, holding: “Corporate governance principles require that directors’ remuneration should not constitute an undue financial burden on the company. “This case addressed corporate governance concerns and affirmed that directors must act in good faith when making financial decisions, including setting their own remuneration. Similarly, in a later case of Union Bank of Nigeria Plc v Soares (( (2012) LPELR-8018(CA) )), the Court of Appeal affirmed what later became section 293(6) of CAMA, 2020 by reiterating that remuneration policies must comply with corporate governance laws and that excessive pay without shareholder approval could be deemed unlawful.

Components of Remuneration Packages 

Again, directors’ remuneration refers to the total compensation package awarded to company directors in exchange for their services. It includes both fixed and variable components, structured to align with corporate governance standards, statutory requirements, and shareholder interests. In Nigeria, directors’ remuneration is regulated by the Companies and Allied Matters Act (CAMA) 2020, corporate governance codes, and judicial precedents²⁴. The remuneration structure aims to balance reward and accountability, ensuring that directors act in the best interests of the company while being fairly compensated for their contributions²⁵.

Scholars have argued that excessive or unregulated remuneration could lead to corporate mismanagement and a misalignment of directors’ interests with those of shareholders²⁶. The Nigerian Code of Corporate Governance (NCCG) 2018 and the Financial Reporting Council of Nigeria (FRCN) emphasize transparency and disclosure in directors’ remuneration policies to prevent abuse and conflicts of interest²⁷. Furthermore, courts have upheld the principle that directors’ remuneration must be justified by actual work done and must not amount to an unauthorized diversion of corporate funds²⁸. 

1. R.B Adams & D. Ferreira, “Women in Boardroom and Their Impact on Governance and Performance” (2019 94(2) Journal of Financial Economics p. 291 [↩]
2. O Uwuigbe et. Al, “Directors’ Pay and Corporate Performance: Evidence from Nigerian Banks” (2020)18(3) Journal of Corporate Governance p. 210. [↩]
3. M. Okike, “Corporate Governance and Executive Pay Disclosures in Nigeria: A Critical Review” (2021) 15(2) African Journal of Business Ethics p.85 [↩]
4. K.J. Morphy, Executive Compensation: Where We Are, and How We Got There (Elsevier 2018) p.170 [↩]
5. T.M Obamuyi and T. Olayemi, “Economic Factors and Executive Compensation in Nigeria: An Empirical Analysis” (2022) 10(2) Journal of Corporate Finance and Governance p. 315. [↩]
6. Section 269(1) of CAMA 2020 [↩]
7. (2010) 6 NWLR (Pt 1189) 1 (SC [↩]
8. (1979) 11 SC 138 [↩]
9. M.C Jensen and K. J Murphy, ‘Performance Pay and Top-Management Incentives’ (1990) 98(2) Journal of Political Economy P. 225 [↩]
10. issued by the Financial Reporting Council (FRC) which applies to public companies and regulated private companies. See Principle 16 of the Nigerian Code of Corporate Governance and all recommended practices thereof. [↩]
11. Issued by the Central Bank of Nigeria (CBN). See Principle 2.7 Central Bank of Nigeria Code of Corporate Governance for Banks and Discount Houses and all recommended practices thereof [↩]
12. Issued by the Securities and Exchange Commission (SEC [↩]
13. Issued by the National Insurance Commission (NAICOM [↩]
14. Issued by the National Pension Commission (PENCOM [↩]
15. CAMA, s 293 [↩]
16. Ibid [↩] [↩] [↩] [↩] [↩] [↩] [↩] [↩]
17. NCCG, Principle 16.1 [↩]
18. Ibid, Principle 16.2. [↩]
19. Ibid, Principle 16.3. [↩]
20. Ibid, Principle 16.4. [↩]
21. Principle 16.5 of the Nigerian Code of Corporate Governance, 2018. [↩]
22. Ibid, sections 293. [↩]
23. (1989) 1 NWLR (Pt 97) 305 [↩]
24. T. Adekoya, The Legal Framework for Directors’ Remuneration in Nigeria (Ibadan: University of Ibadan Press, 2021) p.62 [↩]
25. C. Okonkwo, Corporate Governance and Directors’ Remuneration in Nigeria: Legal and Regulatory Perspectives (Lagos: University of Lagos Press, 2019) p. 45. [↩]
26. S. Ajayi and F. Oyetunde, The Regulation of Directors’ Remuneration under Nigerian Corporate Law: An Analysis of CAMA 2020, Nigerian Journal of Business and Corporate Law p.145,150. [↩]
27. C. Eze and B. Udoma, Transparency and Accountability in Directors’ Remuneration: A Review of Nigerian Corporate Governance Laws 2022, Nigerian Journal of Corporate Governance and Law p.210,215. [↩]
28. See Guinness Plc v Saunders [1990] 2 AC 663. [↩]