Executive Compensation and Company Performance: Pre- and Post-Marikana Uprising Analysis

Abstract

Background: Executive compensation has become a controversial topic globally. Recent and past incidents of labour unrest, including those that plagued the South African mining sector in 2012, highlighted the level of controversy on the subject. Purpose: The purpose of this study was to investigate the relationship between executive compensation and company performance in the mining sector of the Johannesburg Stock Exchange (JSE). Methodology: The study was quantitative in nature and used purposive sampling in selecting 28 mining companies listed on the JSE. Estimated generalised least squares (EGLS) and seemingly unrelated regression (SUR) were used to analyse unbalanced panel data spanning from 2007 to 2018. Findings: The results show that there is no relationship between executive compensation and market value added (MVA), revenue growth (RG), return on assets (ROA), and return on equity (ROE) both before and after the Marikana event. In the period before the Marikana event, 2007–2012, economic value added (EVA), share price (SP) and total assets (TA) were statistically significant in explaining variability in executive compensation. However, in the post-Marikana period, 2013–2018, only the TA and earnings per share (EPS) are statistically significant in explaining the variability in executive compensation. Value: This study offers a practical contribution to policy makers and practitioners on pertinent performance measures that can aid in minimising agency costs when designing executive compensation plans.

Executive compensation, risk and performance: evidence from the USA

“…The academic discourse has evolved into various theorical models and shed lights on the drivers of rising executive compensation (Frydman and Saks, 2010; Gyawali, 2023). A series of empirical investigations ensued these models and produced conflicting outcomes in connection with the nexus between executive compensation and firm performance (Bussin, 2015; Bussin and Blair, 2015; Kweh et al , 2022; Nkwadi and Matemane, 2022; Sajnóg and Rogozińska-Pawełczyk, 2022; Mohammed et al , 2023). Given this background, this section makes a review of both theoretical and empirical literature on the relationship and develops hypotheses for testing.…”

“…directors, CEOs and managers) delivers in practice (Eisenhardt, 1989; Kayani and Gan, 2022). The theory postulates both parties as utility maximisers and presents the notion of an “agency problem” (Jensen and Meckling, 1976) when the agent is less likely to act in the best interest of the principal (Nkwadi and Matemane, 2022). Agency problems ascend in the form of “moral hazard” when principals and agents (i.e.…”

“…As a solution to the agency problem of “the difficulty in monitoring how agent effort influences uncertain outcomes” (Cheng et al , 2015, p. 24), agency theory advocates properly designing executive compensation packages including strong incentives (e.g. equity ownership) (Prendergast, 2002; Cheng et al , 2015) to enhance an executive’s wealth corresponding to the enhanced corporate performance and/or the values of stocks (Baker et al , 1988), and to steer agents’ behavior in serving the best interests of their shareholders (Jensen and Murphy, 1990; Ueng and Wells, 2001; Garas et al , 2022; Kreilkamp et al , 2022; Nkwadi and Matemane, 2022). In summary, the separation of ownership between owners and controllers of companies has necessitated the delegation of power to executives and creation of motivational compensation package to align and take care of various shareholder’s interest.…”

“…(2015) used a conventional single equation model to investigate a sample of listed companies in South Africa and revealed a relatively weak PPS. In a similar direction,Nkwadi and Matemane (2022) found no evidence of relationship between CEO compensation and performance, as measured by market value added, revenue growth, ROA and return on equity (ROE), based on the analysis of unbalanced panel data of 28 Johannesburg Stock Exchange listed mining companies for the 2007-2018 period.2.2.5 Developing country experience.Literature documents a wide range of studies on the developing world. For example, Ahamed (2022) investigated the banking sector in Bangladesh and reported a significantly positive association between CEO compensation and performance of banks.…”

“…US(Banghøj et al, 2010;Jeppson et al, 2011) South Africa(Nkwadi and Matemane, 2022) Note: Ã Finding relates to financial services, manufacturing and trade industries Source: Literature review 2.2.2 Developed country experience.…”