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. 

The components of directors’ remuneration include: salaries, bonuses, stock options²⁹), allowances, commission, participation in profit³⁰), quantum merit payment³¹), pension and retirement benefits, severance pay (Compensation for Loss of Office), etc. Below are concise explanation of each component:

1. Salary: The salary forms the fixed component of a director’s remuneration and is determined by the company’s board in accordance with shareholder approval. It compensates directors for their regular duties and responsibilities. CAMA 2020³² requires disclosure of directors’ salaries in the company’s financial statements. The Code of FRCN Corporate Governance, 2018 and SEC Code 2011, both advocate transparency and fairness in directors’ remuneration to prevent excessive compensation. The Court had judicially affirmed this principle in Hutton v West Cork Railway Co³³ while holding that directors’ salaries must be justified by actual work done and should benefit the company.

2. Bonuses: A bonus is an additional payment awarded to directors based on company performance. It serves as an incentive to align directors’ interests with the company’s profitability. CAMA 2020 requires disclosure of performance-based remuneration, including bonuses, in financial statements. On its part, the SEC Code of Corporate Governance 2011 encourages linking directors’ bonuses to company performance metrics. This recommended practice has been judicially affirmed in Guinness Plc v Saunders [supra]³⁴

3. Stock Options and Share-Based Compensation: Stock options grant directors the right to purchase company shares at a predetermined price. This aligns their financial interests with long-term company growth. The SEC Code of Corporate Governance for public company recognizes stock option remuneration in principle 14(4)(5). It states thus:

14.4. Where share options are adopted as part of executive remuneration or compensation, the Board should ensure that they not priced at a discount except with the authorization of the SEC. Any such deferred compensation should not be exercisable until one year after the expiration of the minimum tenor of directorship.

14.5. Where share options are granted as part of remuneration to directors, the limits should be set in any given financial year and subject to the approval of the shareholders in general meeting.

Statutory Authority³⁵)

However, CAMA 2020 implies that directors cannot receive such shares or stock options unless authorized by shareholders³⁶). The Investment and Securities Act (ISA) 2007 regulates share-based compensation, particularly in publicly listed companies³⁷. 

4. Allowances: Allowances refer to additional payments provided to directors for expenses related to their roles. These may include: housing allowance, transportation allowance, travel and entertainment allowance, health and insurance benefits, etc³⁸). FRCN Corporate Governance Code 2018 requires that allowances be reasonable and not excessive.³⁹. Every allowance must be determined by the Article or, where not predetermined, by the general meeting. In Regal (Hastings) Ltd v Gulliver⁴⁰ it was held that directors should not personally benefit from company funds unless properly authorized.

5. Commission: A commission is a percentage of revenue or profit paid to directors for achieving specific business targets, such as securing contracts or increasing profitability. SEC Code of Corporate Governance 2011 Recommends that commissions should be tied to measurable company performance. The Code has been judicially reaffirmed in Re Halt Garage (1964) Ltd [1982] 3 All ER 1016, when the Courted stated that commissions must be reasonable and should reflect actual work done by directors.

6. Participation in Profit: Some directors receive a percentage of the company’s profits as part of their remuneration. This ensures that their interests align with the company’s financial success. This component of directors’ remuneration is mentioned in Principle 16.9 of the FRCN Code, 2018. The code encourages linking directors’ remuneration to long-term company performance. However, the Court in Southern Foundries (1926) Ltd v Shirlaw⁴¹ has emphasized that profit-sharing must be properly authorized and legally enforceable.

7. Quantum Meruit Payment: Quantum meruit refers to payment made to directors for services rendered in the absence of a formal contract or prior agreement. Nigerian Contract Law recognizes quantum meruit claims where work has been done without prior agreement but has benefited the company. The case of Way v Latilla⁴² established that a person may claim reasonable compensation for work done, even if there was no formal contract. Section 294(3) CAMA 2020 provides: ‘Where he performs some services without a contract, he is entitled to Payment on a quantum merit’.

8. Severance Pay (Compensation for Loss of Office): Directors removed before the expiration of their tenure may receive severance pay or compensation for loss of office. Section 294(2) of CAMA 2020 supports claim for Severance Pay (Compensation for Loss of Office). In Re George Newman & Co Ltd⁴³, the Court declared that unauthorized severance payments to directors are invalid.

9. Pension and Retirement Benefits: Directors may receive pension and gratuity payments as part of their retirement benefits. The Pension Reform Act 2014, mandates pension contributions for directors in formal employment. The CAMA 2020, requires disclosure of pension benefits in company reports⁴⁴. The authority of Southern Foundries (1926) Ltd v Shirlaw [supra] recognizes pension and retirement benefits as a legitimate component of remuneration.

Current Trends in Nigeria

The NCCG 2018 recommends that remuneration policies be designed to attract, motivate, reward, and retain high-performing human capital, aligning with the long-term growth and success of the organization. It also advises that remuneration should demonstrate a clear relationship between Key Performance Indicators (KPIs) and rewards, while preventing excessive risk-taking. Additionally, the Code mandates that companies disclose their remuneration policies and the remuneration of all directors in their annual reports to ensure transparency⁴⁵. 

Furthermore, the Nigerian Communications Commission (NCC) has issued guidelines to enhance corporate governance within the telecommunications sector. These guidelines stipulate that directors should not be involved in deciding their own remuneration, advocating for the establishment of remuneration committees composed largely of non-executive directors. The NCC also recommends separating the roles of the Chairman of the Board and the Chief Executive Officer to maintain independence and proper checks and balances⁴⁶). 

In terms of compensation mix, a notable trend in the global market is the emphasis on mandatory stock ownership to align non-executive directors’ (NEDs)⁴⁷ interests with those of shareholders. Typically, about 50% to 75% of annual directors’ fees are payable in shares, with the balance in cash. NEDs may also have the option to receive all their fees in shares. However, in Nigeria, the adoption of such practices is still evolving, and severance pay upon directors’ disengagement is not common. 

Regulatory frameworks in Nigeria, such as the Nigerian Code of Corporate Governance 2018 examined above, prohibit performance-based compensation for NEDs. Their remuneration is fixed by the board of directors and approved by shareholders. Additionally, NEDs are entitled to reimbursement for expenses incurred during official duties.

Disclosure transparency of directors’ remuneration in Nigeria has been a subject of scrutiny. Studies have indicated that managers in Nigerian listed companies are inclined not to voluntarily disclose their remuneration to the public, with transparency scores being less than 40%. This underscores the need for policy reforms to mandate comprehensive disclosure, aligning with global best practices.

However, recent disclosures further indicate a trend towards substantial remuneration packages for directors in Nigerian companies. For instance, in 2024, Fidelity Bank’s shareholders approved an annual compensation package of N60 million for the Chairman and N40 million for each non-executive director. Similarly, MTN Nigeria Plc set an annual remuneration of N54.120 million for its Board Chairman and N36.285 million for each director⁴⁸.

Furthermore, it is apparent that in recent years, directors’ remuneration in Nigeria has seen notable increases across various sectors. For instance, in 2023, executive and non-executive directors of 10 banks received a total of N17.79 billion in sitting allowances and compensation, marking a 2.2% rise from the previous year. Zenith Bank led with N5.98 billion, followed by FBN Holdings with N3.41 billion, and Stannic IBTC with N3.13 billion. Conversely, Access Bank reduced its directors’ allowances by 37.2% to N687 million⁴⁹. 

In the telecommunications sector, MTN Nigeria’s highest-paid director received N567 million in 2020, positioning the company at the forefront of director compensation⁵⁰.

In addition, the Nigerian Code of Corporate Governance 2018 emphasizes that companies should remunerate fairly, responsibly, and transparently to promote strategic objectives and positive outcomes. It recommends that remuneration policies be designed to attract and retain high-performing individuals while ensuring a clear relationship between key performance indicators and remuneration. Additionally, the code advises that non-executive directors should not receive performance-based compensation to maintain their objectivity⁵¹. Judicial scrutiny has also played a role in shaping directors’ remuneration practices. In the case of Mr. Jubril Adewale Tinubu & Anor vs SEC & Anor⁵², the Securities and Exchange Commission (SEC) investigated Oando Plc for alleged corporate governance failures, including directors receiving remuneration above the provisions of the board charter. The SEC’s directives included the resignation of affected board members and the refund of improperly disbursed remuneration⁵³. This development underscores the importance of aligning directors’ remuneration with company performance and adhering to established corporate governance frameworks to ensure fairness and accountability.

Importance of Directors’ Remuneration in Corporate Governance

Director’s remuneration is a key aspect of corporate governance and financial management. It plays a significant role in attracting, retaining, and motivating directors to make strategic decisions that enhance shareholder value. Below are the key reasons why director’s remuneration is important:

i. Attracting and Retaining Talent: Competitive remuneration packages help companies attract and retain experienced and competent directors. Skilled directors are essential for formulating effective business strategies and ensuring long-term growth.

ii. Motivation and Performance Enhancement: A well-structured remuneration package aligns directors’ interests with the company’s goals, encouraging better performance. Performance-based incentives (such as bonuses and stock options) drive directors to make decisions that benefit shareholders.

iii. Aligning Interests with Shareholders: Linking director remuneration to company performance ensures that directors work towards maximizing shareholder wealth. Stock options and long-term incentive plans encourage a focus on sustainable growth rather than short-term gains.

iv. Corporate Governance and Compliance: Transparent and fair remuneration policies strengthen corporate governance and reduce the risk of conflicts of interest. Regulatory frameworks in various jurisdictions require disclosure of director remuneration to ensure accountability and fairness.

v. Risk Management: Well-structured remuneration can prevent excessive risk-taking by ensuring that incentives are aligned with prudent decision-making. Overly high or misaligned pay structures can lead to unethical behavior or financial mismanagement.

vi. Reputation and Stakeholder Confidence: A fair and transparent remuneration system enhances investor confidence and the company’s reputation. Unreasonable or excessive director pay can lead to shareholder dissatisfaction and negative publicity. 

Challenges and Controversies 

1. Lack of Transparency and Disclosure: Many Nigerian companies do not provide sufficient disclosure on directors’ remuneration, despite the requirements of the Companies and Allied Matters Act (CAMA) 2020 and the Nigerian Code of Corporate Governance (NCCG) 2018. This lack of transparency raises concerns about accountability and fairness.

2. Weak Shareholder Oversight: Unlike in some jurisdictions where shareholders have a binding vote on executive pay, Nigerian shareholders often have limited influence over directors’ compensation. Many companies, especially family-owned and closely held ones, set remuneration without effective shareholder scrutiny.

3. Excessive and Unjustified Pay Packages: There have been cases where directors receive disproportionately high remuneration compared to company performance. In some instances, companies paying large director fees struggle with profitability or even employee salaries, leading to public outcry.

4. Corporate Governance Challenges: Board independence is often compromised in Nigerian firms, especially where the CEO and board chair roles are not separate. This weakens internal controls, allowing directors to influence their remuneration without adequate checks.

5. Regulatory Gaps and Enforcement Issues: Despite existing laws and corporate governance codes, enforcement remains weak. Regulatory bodies like the Financial Reporting Council of Nigeria (FRCN) and the Securities and Exchange Commission (SEC) have struggled to ensure full compliance by listed companies.

6. Economic and Inflationary Pressures: Nigeria’s high inflation and unstable currency impact executive pay structures. Companies sometimes increase directors’ remuneration to adjust for economic challenges, even when business performance does not justify such increments.

7. Comparability with Global Standards: Nigerian directors’ remuneration is often perceived as either too high (in struggling firms) or too low (compared to global peers), creating challenges in attracting and retaining top talent while maintaining fairness.

Conclusion 

 In conclusion, while there is a positive correlation between directors’ remuneration and company performance in Nigeria, there is a pressing need for enhanced transparency and adherence to corporate governance standards to ensure that remuneration practices align with shareholder interests and global best practices.

The key considerations for fixing NEDs’ Remuneration are the size, span and complexity of a company’s business. Also, the risks associated with decisions taken by the Board as well as performance conditions expected would typically be considered. Therefore, achieving the right compensation mix is critical to enhancing an organisation’s value proposition. Companies would need to adapt their reward strategies to ensure that the pay levels reflect the duties and the responsibilities of their NEDs. To achieve a balanced remuneration policy in line with the Codes of corporate governance, it is recommended that there should be: strengthened shareholder activism to enhance oversight of executive pay, improved regulatory enforcement and sanctions for non-compliance, enhanced disclosure requirements to ensure transparency in remuneration policies and statutory alignment of pay structures with company performance to prevent excessive rewards.

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About the Author

Sunday Nelson Ogboso, Esq. is a practising Attorney at the law firm of I.I Ekwerekwu, Ekwerekwu & Co. located at No. 2 Court Road, Onitsha, Anambra State, Nigeria. He is also a legal scholar and corporate law expert pursuing a Master’s degree in Corporate, Commercial, and Business Law at Nnamdi Azikiwe University, Awka. He is passionate about constitutional law, business law, and governance reforms in Nigeria.

Email: [email protected] | Phone: 09032032811.

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17. NCCG, Principle 16.1 [↩]
18. Ibid, Principle 16.2. [↩]
19. Ibid, Principle 16.3. [↩]
20. Ibid, Principle 16.4. [↩]
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31. Ibid, section 294 (3 [↩]
32. Section 293 [↩]
33. (1883) 23 Ch D 654: [↩]
34. Guinness Plc v Saunders [supra]. The court ruled that bonuses paid without proper authorization by shareholders are invalid. [↩]
35. See also NGCG, 2018 at principle 16(9 [↩]
36. See section 296(2 [↩]
37. Percival v Wright [1902] 2 Ch 421 reinforced the principle that directors must act in the best interest of shareholders when dealing with shares. [↩]
38. CAMA 2020 – Section 293(2 [↩]
39. Principle 16 [↩]
40. [1942] UKHL 1 [↩]
41. [1940] AC 701 [↩]
42. [1937] 3 All ER 759 [↩]
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