Top managers in Kenya and Uganda are likely to see their salaries adjusted upwards at a faster rate in the coming year than their peers in the region, as companies in these countries battle for talent, a new survey shows.

The pay will be increasingly aligned to risks taken, an indication of the intense competition in a regional market that is increasingly demanding innovative thinking and fresh solutions from managers, according to the survey by financial advisory firm PricewaterhouseCoopers (PwC).

“At the upper levels of management, we find that competition for talent is very much an employee’s market and they have a lot of leverage. At the graduate level, it is more of an employer’s market. At all levels, however, organisations are showing more interest and focus with regard to human capital and this is a positive development,” said Kuria Muchiru, partner at PwC Kenya and Africa human capital leader for PwC Africa.

Nine out of 10 top executives surveyed said that they have had to adjust the pay package of their employees because of the risk of losing them to the competition.

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This preference among the EAC CEOs polled is much higher than the average among African CEOs, where about 75 per cent reported similar pressures. Globally, the rate is lower at about 70 per cent.

The PwC survey, dubbed The Africa Business Agenda, which is to be released on October 11, sampled 301 firms in sub-Saharan Africa — 31 CEOs from Kenya, 20 each from Uganda and Tanzania, and 15 from Rwanda.

And as firms increase salaries to match their rivals, they are also keen to boost their headcount — signalling a wave of new jobs across sectors in the region.

According to the survey, a majority of East African firms — 54 per cent of chief executive officers polled — intend to hire new staff over the next 12 months. Only about a quarter of CEOs interviewed said they intended to maintain their current headcount.

More job opportunities are to be found in Tanzania, where only about 12 per cent of businesses are not planning to hire more people.

At least 28 per cent of Kenyan and Ugandan CEOs said they expect the staff numbers in their companies to stay the same in the next one year. At least 33 per cent of CEOs in Rwanda expect the work force to remain at the current levels.

Human capital is increasingly becoming the most sought after arsenal in the region, as companies seek talent to drive their expansion strategies and grow.

Human resource experts said as a result of the pressure for better pay packages for top executives, the growth in salaries for managers will continue to outpace that of rank-and-file employees.

“At all levels within an organisation, recruitment and retention is about more than just pay. Successful companies know this, and they invest in a broad variety of incentives, rewards and programmes to build a corporate culture that influences retention,” said Mr Muchiru.

The pressure is particularly intense in Uganda, where all the chief executives interviewed said they have had to adjust pay in order to retain top talent.

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In Kenya, the figure is 97 per cent, in Tanzania it stands at about 90 per cent, and in Rwanda is at 80 per cent.

Companies are keen to get the right people in top offices to drive growth in a mixed environment where some firms reported a slowdown in profits while others made losses.

Kenya’s banking sector posted a 15.6 per cent increase in profit before tax to Ksh61.5 billion ($715 million) for the period ended June this year, from Ksh53.2 billion ($631.5 million) posted for the period ended June 2012, according to Central Bank of Kenya data.

Some listed companies, such as East African Breweries Ltd, reported a drop in their profitability on account of increased financing costs, flat sales and increased product prices that were passed on to consumers. Sugar miller Mumias Sugar posted a Ksh1.67 billion ($19.6 million) loss for the full year ended June.

Uganda’s top executives currently earn between $15,000 and $20,000 per month.

Competition

John Opiro, managing director of Uganda’s Kalangala Infrastructure Services, said competition for talent in the country is already pushing up the costs of labour.

“We are at the moment facing a lot of pressure from other companies who want to sign our qualified staff at better packages. So unless we offer competitive packages, they will go,” Mr Opiro said.

A similar situation prevails in Tanzania, where Tanganyika Plantation Company chief executive officer Robert Baissac said his company had been forced to restructure its pay scheme for top managers in a bid to keep key talent.

“A high demand for top professionals is stripping the available talent pools; there is stiff competition in the country to hire and retain competent people,” Mr Baissac said.
Edward Nkyere, a human resource manager with Palace Hotel Arusha, said executive pay could increase by as much as 30 per cent in next two years.

Pay for top executives in Tanzania at the moment ranges between $7,500 and $9,375 per month.

Over the past few years, executive pay, especially for companies that have expanded into the region, has risen by as much as 25 per cent annually as firms accommodate an increasing number of managers, some of whom have come up through the ranks while others have been poached from competitors.

On their part, Kenya’s top executives currently earn between $17,000 and $45,000 a month, according to an earlier report by PwC.

As at the end of 2012, there were 10 listed banks on the Nairobi Securities Exchange, eight of which had operations in the region.

According to published annual reports for the period ended December 2012, Equity Bank Group’s combined pay to all its managers rose to Ksh1.13 billion ($13.1 million) from Ksh679 million ($7.9 million) for the period ended December 2011.

The bank has operations in Kenya, Uganda, South Sudan, Rwanda and Tanzania. Co-operative Bank, which has been setting up operations in South Sudan, paid a combined Ksh589.55 million ($6.8 million) for the period ended December 2012, down from Ksh592.82 million ($6.9 million) for the period ended December 2011.

KCB Group, which has operations in Kenya, Uganda, Tanzania, South Sudan, Rwanda and Burundi, cut its combined management pay by 15.42 per cent to Ksh527.87 million ($6.1 million) from Ksh624.08 million ($7.3 million).

The region’s occasionally unstable business environment is a challenge for top executives, forcing employees to demand pay for performance.

Not sustainable

“The business environment in this region can carry a lot of risk. If a top manager is able to navigate all these hurdles then the effort should definitely be reflected in their pay package,” said Patrick Obath, a former oil executive who sits on several company boards in Kenya.

But Robert Bunyi, a business analyst based in Nairobi, cautioned that the wage inflation is not sustainable in the long run.

“When HR spend rises across the board, it’s very difficult for a business to resist market pressures,” said Mr Bunyi.

“But the wages cannot keep rising forever; it’s not sustainable in the long run. At some point, the question of productivity comes in — how can you afford to get more out of your employees at the same cost? Businesses have to increase efficiency levels,” he added.

HR executives said different market fundamentals — like profitability of firms and availability of skills — in the region will mean countries will increase salaries at varying rates, further deepening the wage discrepancies that exist within the EAC.

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A look at the packages for professionals — such as nurses, lecturers and doctors — in the EAC shows those in Kenya are earning more than their counterparts, save for university lecturers.

This means Kenyan professionals seeking employment outside the country would have to take wage cuts as the region’s labour market finds its supply and pay structure balance under the Common Market Protocol signed in 2010.

Though the EAC had intended to ease movement of labour across regional borders, pay discrepancies across countries have rendered this difficult to achieve.

East African chief executives, the survey shows, are keen to develop leaders among their staff, deploying various strategies to develop the leadership pipeline.

The most common strategy is involving managers below board level in strategic decision-making, with Rwanda being the most collaborative environment — all the CEOs interviewed said they had involved lower-level managers in strategic decisions.

Additional reporting by David Mugwe, Isaac Khisa and Adam Ihucha