The relationship between remuneration and financial performance for companies listed on the Johannesburg Stock Exchange

Abstract

Background: The executive directors of a company are the agents of the shareholders and should manage the company in the best interest of the shareholders, not only for personal gain. It is therefore important for companies to ensure that they implement remuneration policies which will result in motivated employees who will execute decisions and actions which are in the best interest of the shareholders. However, it is widely acknowledged that the relationship between company performance and executive remuneration is weak. This implies that executives are still rewarded excessive remuneration regardless of the performance of their companies. Aim: The purpose of this study was to determine whether a relationship exists between the performance-based remuneration of executive directors and the financial performance of South African companies. Setting: The study was conducted in South Africa, specifically on companies listed on the Johannesburg Stock Exchange. Methods: The study design was quantitative and made use of a Pearson correlation and generalised least squares regression with bootstrapping at a 95% confidence interval to analyse the relationship between executive director remuneration and the financial performance of 42 companies in the consumer goods and services industry of the Johannesburg Stock Exchange (JSE) from 2006 to 2015. Results: The study established that the remuneration policies in place for South African executive directors within the consumer goods and services industry seem to be affected by the share price of the company. Conclusion: In the South African environment, executive director remuneration is thus not directly related to profitability or company size, as was the case in some earlier studies. The link between executive director remuneration and share performance may be an indication that remuneration policies are based on the share price and are thus directly connected to the principle of shareholder wealth maximisation.

The year-on-year analysis of the relationship between chief executive officer remuneration and state-owned company performance in South Africa

“…This supports the notion of Jensen and Murphy (1990). For the same reason, it could also imply that STIs are not sensitive to SOC performance (Nulla, 2015), or even that CEOs were rewarded with STIs that are not in line with their efforts and the performance of the SOCs (Kirsten & Du Toit, 2018).…”

The effect of the economic crisis on pay-performance link in South African state-owned enterprises

“…The findings of the negative relationship between the CEOs' remuneration components and some of the SOE performance measures do not support the economic theories of efficient remuneration (Kirsten & Du Toit, 2018) or even the agency theory, whereby a positive relationship between business performance and executive remuneration is forecasted (Bezuidenhout et al, 2016). These results support the proposition that there is an agency problem in South African SOEs (Carlson & Bussin, 2020).…”

“…State-owned-enterprises are not registered on the JSE, with a small number of SOEs providing LTI schemes (Bezuidenhout et al, 2018). Furthermore, the erratic nature of LTI pay-outs (Carlson & Bussin, 2020;Kirsten & Du Toit, 2018) would have introduced unsubstantiated influence during the research period.…”

Board Independence, Nomination and Remuneration Committee, and Compensation in Indonesia

“…In that case, the reward system is established to provide solutions to agency problems between principals and agents. However, it must be linked to organizational performance and company strategy and take into account the nature and growth of the company (Kirsten and Du Toit, 2018). Besides, (Rasoava, 2019) shows that the remuneration scheme is designed by a board that describes high compensation and organizational size, demand for management capabilities, and executive influence.…”