Earnest Bai Koroma University of Science and Technology

(EBKUST)

School of Post Graduate Studies-Magburaka Campus

MODULE TITLE: CORPORATE GOVERNANCE, SYSTEMS &

CONTROL (MCGS 615)

TASK: PRESENTATION ASSIGNMENT

TOPIC: MANAGEMENT AND COMPENSATION

NAME OF LECTURER: MR. IBRAHIM BARRIE

GROUP 4 MEMBERS:
1. JAMIL M. KAMARA
2. HAWANATU KARGBO
3. BOCKARIE SAFFA
4. ABIBATU KOROMA
5. AMADU A. KPAKA
6. SAIDU A. CONTEH
7. SULAIMAN KAMARA
8. MUSTAPHA SESAY
9. ABU D. BANGURA
Contents
Introduction.............................................................................................................. 1
Management & Compensation ............................................................................... 2
Management .......................................................................................................... 2
Work Environment............................................................................................ 3
Job Satisfaction .................................................................................................. 3
Employee Retention .......................................................................................... 4
Compensation ........................................................................................................... 6
Abraham Maslow’s hierarchy of needs theory .................................................. 8
Background of ADDAX Bio-Energy ...................................................................... 9
Project Objectives ............................................................................................... 10
Vision.................................................................................................................... 10
The scale down of ADDAX ................................................................................ 10
The withdrawal of Addax operations ............................................................... 11
Corporate Governance Issues............................................................................... 11
Compensations And Remunerations of workers ............................................. 12
Relationships With Stakeholders ...................................................................... 13
Ethics And Transparency ................................................................................... 13
Conclusion .............................................................................................................. 14
References ............................................................................................................... 15
CORPORATE GOVERNANCE- MANAGEMENT AND COMPENSATION

Introduction
Corporate governance is a central and dynamic aspect of business. The term
governance is derived from the latin word gubernare, meaning to steer. It usually
applies to the steering of a ship. Thus, this implies that corporate governance
involves the function of direction rather than control. Corporate governance has
come to the forefront of academic research due to the vital role it plays in the
overall health of economic systems. Corporate governance was long ignored as a
matter of potential importance for the development of a nation’s economy. The
wave of U.S. corporate fraud in the 1990s was attributed to deficiencies in
corporate governance. The recent 2008-2009 global financial crisis, triggered by
the unprecedented failure of Lehman Brothers and the subprime mortgage
problems, renewed interest on the role of corporate governance in the financial
sector. The development of a strong corporate governance framework is important
to protect stakeholders, maintain investor confidence in the transition countries,
and attract foreign direct investment.

Corporate Governance, Management, and Compensation are critical elements that

determine the success of any organization. In this context, Corporate Governance
refers to the set of rules, processes, and policies that guide the management of a
company. Management refers to the people responsible for making decisions and
leading an organization, while compensation is the money, benefits, and incentives
that are given to employees.

Corporate Governance ensures that a company is run in an ethical and responsible

manner, and is accountable to its stakeholders. It involves;

Board of Directors
Shareholders

Management

Stakeholders

The Board of Directors is responsible for setting the strategy, monitoring the
performance of the company, and making sure that the company operates in
compliance with laws and regulations.

Shareholders are the owners of the company and have the right to vote on major
issues, such as the election of the Board of Directors.

Management is responsible for executing the strategy and ensuring that the
company achieves its goals.

Stakeholders include customers, employees, suppliers, government, and the

community, and their interests should also be considered.

Best practices in Corporate Governance include having an independent Board of

Directors, ensuring that the Board has a mix of skills and expertise, having clear
policies and procedures, and regularly monitoring the performance of the company.

Management & Compensation

Management

Effective Management is crucial for the success of an organization. Good

management involves setting clear goals, making informed decisions, and
executing plans effectively. Managers must have strong leadership skills, the
ability to communicate effectively, make decisions, and solve problems.
Best practices in Management include setting clear goals and objectives, providing
feedback and coaching, fostering a positive and inclusive workplace culture, and
encouraging collaboration and teamwork.

According to Riski Ayu (2018), In ensuring effective management control in an

organization, management should pay attention into the following:

 Work Environment
 Job Satisfaction
 Employee Retention

Work Environment
Work environment is the individual employee's perceptions of and experiences in
the immediate work setting (Reichers & Schneider, 1990). Brenner (2004)
demonstrated that work environment should be designed to fulfill employees’
satisfaction and ensure the free flow of ideas exchange, and this leads to
motivating employees towards achieving higher productivity. According to
Nakpodia (2011), a good working environment exists when all the essential needs
and facilities that could help employees do their works are provided. Such facilities
and needs include decent furniture, air-conditioned offices, teaching facilities and
materials, pleasant communications and network of information technology, good
working atmosphere, and exposed organizational climate.

Job Satisfaction
Job satisfaction is an important target in human resource management because it
can affect the performance and productivity of labor. Job satisfaction can be seen
from how employees react to changes in the characteristics of his work. A picture
of employee satisfaction is the weight of ideas generated by employees in his mind
of all aspects of their work (Hamermesh, 2001). Job satisfaction is the extent to
which the employee is satisfied with his present work due to how many his needs
and wants satisfied (Finn, 2001).

Employee Retention
Employee retention is a process in which the employees are encouraged to remain
with the organization for the maximum period or until the completion of the
project (Bidisha and Baruah, 2013). Retaining is an ability and administrative
technique which start from creating, holding and using asset for present and future
use (Hausknecht et al. 2008). Jackson (2006) define retention as everything an
employer does to encourage qualified and productive employees to continue
working for the organization.

In the 1960s, social psychologist Douglas McGregor developed two contrasting

theories that explained how managers' beliefs about what motivates their people
can affect their management style. He labeled these Theory X and Theory Y. These
theories continue to be important even today.

Theory X advanced the view that human beings have an innate dislike for work.
They can only be made to get results at work by the application of forcible
methods and by direction. Theory X stresses on the authoritarian style of
leadership where results are the focus of leadership and it is more work-cantered
than people-cantered.

Theory Y approach to management is more people-cantered. Here the individual is

valued and appreciated. Theory Y submits that when workers are given the right
kind of environment, they can reach their highest potential and can be of great
value to their organizations.
A few numbers of authors consider McGregor’s work as a basic theory of
motivation, whereas others feel it is a philosophy of human nature and fits more
logically into a discussion of leadership than basic motivation theories.

McGregor postulated, that leaders who hold Theory X assumptions believe that
people are lazy, dislike responsibility and not motivated and therefore need to be
forced before they will work and show commitment.

Such a leadership assumption leads to very close supervision and control of

workers and siphons the ingenuity of workers and results in a lack of motivation in
workers.

This style of management assumes that workers:

 Dislike their work.

 Avoid responsibility and need constant direction.
 Have to be controlled, forced and threatened to deliver work.
 Need to be supervised at every step.
 Have no incentive to work or ambition, and therefore need to be induced by
rewards to achieve goals.

Leaders, who practice Theory Y assumptions, on the other hand, involves workers
to engage in joint problem solving, to understand the needs of team members and
to integrate personal needs of achievement with organizational objectives

Theory Y managers have an optimistic opinion of their people, and they use a
decentralized, participative management style. This encourages a more
collaborative, trust-based relationship between managers and their team members.

People have greater responsibility, and managers encourage them to develop their
skills and suggest improvements. Appraisals are regular but, unlike in Theory X
organizations, they are used to encourage open communication rather than to
control staff. Theory Y organizations also give employees frequent opportunities
for promotion.

This style of management assumes that workers are:

 Happy to work on their own initiative.

 More involved in decision making.
 Self-motivated to complete their tasks.
 Enjoy taking ownership of their work.
 Seek and accept responsibility, and need little direction.
 View work as fulfilling and challenging.
 Solve problems creatively and imaginatively.

Compensation
Compensation is an important tool for attracting, retaining, and motivating
employees. It includes salary, benefits, and incentives such as bonuses and stock
options (are a type of equity compensation given by companies to some
employees). The compensation package should be competitive and aligned with
the company's goals.

In the early 20th century, the America government took a significant role and
began to introduce several changes in many aspects of workers’ pay and
remuneration.

This brought about Acts such as the fair Labour Standards Acts of 1938, which
dictated equal pay for equal work. However, recessions dotted the following
twenty years but later on the economy boomed and government played an
increasingly important role in America's workplace by ratifying the equal pay Act
(the Civil Rights Acts in 1963) Executive order 11246.
Compensation is a complex topic that has significant impact on organizational
success (Dessler, 2005), and for any organization to succeed, it must not look up to
capital investment but to its employees as the fundamental source of improvement
with the understanding that the human element and the organization are
synonymous (Tella. Ayeni, and Popoola, 2007).

McNamara (2006), compensation includes issues regarding wage and/ or salary

programs and structures accruing from job descriptions, merit-based programs,
bonus-based programs, commission-based programs and so on, while benefits
typically refers to retirement plans, health life insurance, disability insurance,
vacation, employee stock ownership plan and so on.

Gomez Mejia, Balkin and Cardy (2006) view employee compensation as

comprising of base pay and fringe benefits. Base pay or cash pay is the direct pay
provided by employers for work performed and these include salary, overtime pay,
shift allowance, uniform allowances and pay contingent on performance like merit
awards, incentive pay, bonuses and gain sharing while fringe compensating include
required programs such as social security, health benefits, pension plans, paid time
off, tuition reimbursement, foreign service premiums and so on.

According to Milkovich & Newman, “compensation represents all forms of

financial returns and tangible services and benefits employees receive as part of an
employment relationship”.

Peter Lang AG (2023) suggest that; Incentive compensation schemes play a focal
role in organization's design and effectiveness and are, in particular, in place to
align the interests of employees and owners. The effort addresses the primary
objective of incentive compensation systems to motivate employees in order to
take specific actions and better allocate efforts that will create organizational
performance. Motivation in this case means that employees put extra efforts toward
organizational objectives dependent on the opportunity to satisfy additional
individual needs.

Best practices in Compensation include linking compensation to performance,

providing clear and transparent communication about compensation, and offering a
comprehensive benefits package.

According to Cascio (2003), the objective of the design of compensation program

is divided into two, which are, direct and indirect forms of compensation. Direct
compensation has to do with wage and / or salary aspect while indirect
compensation is the fringe benefits a worker enjoys as a result of working in an
organization. Integrating the two into a package that will encourage the
achievement of an organizations goal is what compensation is all about.

Abraham Maslow’s hierarchy of needs theory

This theory consists of a hierarchy involving five key levels, following the
structure from the bottom to the top:

 Psychological needs (bottom)
 Safety
 Love and belonging
 Esteem
 Self-actualisation (Top)

These steps symbolise employees’ needs. Firstly, the needs at the bottom are the
basic and necessary needs that are required to be fulfilled before an individual can
aim to achieve needs that are placed at the higher step of the hierarchy.
These five layers of needs are grouped into three categories. The bottom needs fall
into the basic needs category which includes needs essential for human survival.
Basic needs include Physiological needs, Safety needs. The psychological needs
include Love and belonging and Esteem needs, these are the social needs and
sense of belonging in the community. Lastly, the Self-fulfilment category covers
the final step of needs called self-actualisation. These needs are not as necessary
to fulfil as the basic or psychological needs but once they are fulfilled it will make
the individual happier.

Self-actualisation is the final and highest level of Maslow’s hierarchy of needs

theory. The final stage can only be achieved if all the previous four steps are
achieved. As the final stage represents when humans realise their potential and
once this step is achieved people can achieve their ‘ideal self’.

In business, context managers can use this theory to motivate employees by aiming
to achieve their needs in hierarchical order. For example, employers first should
make sure basic needs are attained before they can seek to satisfy employees’
needs at a higher level.

Background of ADDAX Bio-Energy

Addax Biofuel Sierra Leone is an investment of Addax & Oryx Holdings, a Swiss
based transnational petroleum company in the Makeni region of Sierra Leone. The
aim was to produce and export bioethanol from sugarcane plantations in Sierra
Leone. The plan was to produce 380,000 liters of ethanol daily, as well as 35 MW
electricity (for their own consumption and the national grid).
At first, the land lease agreement was established on a surface of 57,000 hectares
for a period of 50 years, with the possibility of renewal for another 25 years. Now,
Addax leases 14,300 hectares of land and plants sugarcane on about 10,000 ha of it

The ADDAX Bio-Energy project started in 2008, began production in May 2014
and made first sales in early 2015. It had to overcome a number of unforeseeable
events, which had a significant impact on the timeframe, costs and revenues
initially planned. These included the Ebola outbreak in May 2014, which took a
terrible human toll on the country and led to substantial delays as the company’s
contractors declared “force majeure” and left the site.

Project Objectives

(i) job creation and training;

(ii) increased government revenues;
(iii) foreign exchange earnings for the economy;
(iv) economic diversification through the development of a new export
sector;
(v) generation of much-needed electricity; and
(vi) improved food security through increased food production

Vision

Addax Bioenergy aims to become a model for renewable energy and sustainable
agriculture in Africa.

We intend to capitalise on our in-depth knowledge of sub-Saharan Africa and our

ambition to integrate economic, social and environmental parameters from the start
to drive mutual success.
The scale down of ADDAX

In June 2015, ABSL scaled down its operations in Makeni. They attributed reasons
for scaling down to the Ebola outbreak as well as the low yield of sugar cane. This
impending risk of failure was hardly conceived by the affected communities in
advance. But the scale down has brought severe consequences for the livelihoods
and food security of people within the communities they operate. Communities had
no access to the leased-out land because the contracts were still in place. People
employed by ABSL were put on garden leave with a 55% salary cut, and the
temporary workers lost their incomes. Without money and land, the threat of
hunger was having an effect everywhere, and frustration and violence in the local
communities increased (SiLNoRF & Bread for the world 2021)

The withdrawal of Addax operations

Addax Bioenergy so far decided to discontinue its operations in Makeni
experiencing Low yield, low production, higher cost due to Ebola even theft and
sabotage are mentioned by Addax and the Development Financial Institutions
(DFIs). Verbal information by senior company officials in Makeni indicated that by
2015 ABSL had accumulated a cost overrun of about € 150 million (SiLNoRF,
2016). Addax Bioenergy in its written statements on the website pointed out
repeatedly it would take a “long view” with regard to the profitability of ABSL
considering the concerns of the target group and the country’s needs.

In 2015, Addax-Bioenergy (SL) Limited transferred 75.1% ownership of its

sugarcane bioethanol and renewable electricity operation in Makeni, Sierra Leone,
to a group of investors led by Sunbird Bioenergy Africa Limited (‘Sunbird
Bioenergy group’). Addax-Bioenergy is keeping a minority interest of 24.9% as a
mark of its confidence in the future of the business, while Sunbird Bioenergy
group will provide the additional financing to take the project to full commercial
operation.

Corporate Governance Issues

The Corporate Governance (CG) practice has been in existence but became topical
and the focus of the limelight interest of this study when for instance Enron and
Lehman Brothers in the United States of America (USA), Barings Bank in the
United Kingdom (UK), Parmalat, Tyco, and WorldCom and, Volkswagen crashed.
The collapse of these organizations brought waves of panic to shareholders,
stakeholders, and governments; which resulted in the establishment of well-
developed corporate codes of governance in Europe and the USA but this has not
been the case in most of the emerging economies thus Sierra Leone has not been an
exemption.

The corporate failure and scale down of ADDAX in Sierra Leone was attributed to
poor corporate governance.

An interview was conducted with some senior managers, and revile that one key
reason that led to the financial crash of ADDAX was as a result of Board. In actual
fact, the board of directors had the duty of overseeing the financial situation,
designing the business strategy and ensuring coherence with the defined values and
ethical principles. The board of directors must have a solid composition,
responsible leadership, members with the knowledge and skills necessary to do
their job well, and a structure that not only promotes independence and diversity
but also creates an ideal environment for making informed decisions. Hence this
has never been the case in the operations of ADDAX in Sierra Leone.

Compensations And Remunerations of workers

ADDAX never had a good compensation and remuneration system for the national
work force, and some of these workers are senior managers that can help to attract
and retain the best talent and create a structure that will increase a collective
performance. The biggest challenge they had was to design and implement
compensation mechanisms that balance the performance of the work force of the
company. Hence It is often recommended that compensation systems include both
fixed income (monthly or yearly) is a good idea to establish mechanisms that
reasonably to encourage behaviour.

Relationships With Stakeholders

Every company exists in a dynamic environment, interacting with shareholders,

employees, suppliers, communities, users, customers and other actors, and each
company has effects on these people and on the spaces where it operates. For this
reason, ADDAX success was depended significantly on some stakeholders (Land
owners & Users, Staffing, government etc), they should have invested their effort
in identifying the effect these stakeholders have in their operations, thus trying to
fostering good relationships with them.

Notably, increasing community engagement has become more necessary now that
investors are requiring more fluent communication with whoever have influence
on the operations of the company, hence local communities often expect their
concerns to be taken into consideration by the company that surround them, like
protecting nature, avoiding polluting the area and taking care of common spaces,
among other concerns.

Ethics And Transparency

These two factors are vital to make good governance a reality. Regulations,
policies and procedures can be useless if there aren’t ethics and transparency in
each action.

Some of the most important actions aimed at promoting good governance include
establishing codes of conduct, anti-bribery policies, effective reporting channels,
regulation of conflicts of interest, and employee hiring and promotion systems.

These five pillars are the foundation of good corporate governance, and they can
help companies remain competitive in a rapidly changing world.

Conclusion
In conclusion, Corporate Governance, Management, and Compensation are critical
elements that determine the success of an organization. Best practices in each of
these areas can help companies achieve their goals, and ensure that they operate in
an ethical and responsible manner.
References
Yongli Luo (2023) Management compensation and corporate governance reform
in China, Journal of Chinese Governance, 

Peter Lang AG (2023) Management Accountants’ Business Orientation and

Involvement in Incentive Compensation

Sch J Econ Bus Manag, (2014) A Literature Review on Compensation

Management Practices

Richard Leblanc; The Handbook of Board Governance: A Comprehensive Guide

for Public, Private, and Not-for-Profit Board Members

Riski Ayu Rahmawati (2018), The Effects of Compensation, Work Environment and
Job Satisfaction on Employee Retention

Peter Lanzet (2016), The Weakest Should not Bear the Risk: Publisher; Bread for
the World – Protestant Development Service
SiLNoRF & Bread for the world (2021), Large-scale Land Acquisition in Africa:
Impacts, Conflicts and Human Rights Violations; The Case of Addax Bioenergy in
Sierra Leone.