The relationship between CEO compensation and various performance indicators in South Africa
Date
2015
Authors
Ndofirepi, Tadiwanashe Phillip
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Abstract
This study examines the relationship between the remuneration of CEOs and the performance of firms in South Africa. The purpose of the research is to empirically observe developments post the King III corporate governance report that suggested that remuneration be closely associated with compensation. The research areas include the risk and reward relationship in three different compensations forms; salary, bonus (cash) and total remuneration (salary plus bonus). It excludes stock options awarded and the level of compensation. The performance measure used were both market and accounting related.
The results are drawn out of a sample of 119 JSE listed firms which sum up to 714 firm-years observed. As in previous studies the multiple regression model was used on estimating panel data, allowing the control of unobserved company related effects.
The results suggest that of all the performance measures ROA is the only one positively related to CEO remuneration, i.e. fixed salary and total remuneration although it is not related to the bonus portion. ROE is negatively related to all fixed salary, and shows that a large increase in ROE leads to a large decrease in CEO basic/fixed pay. Only the preceding accounting components of performance were related to CEO remuneration, stock price (RET) the market measure for performance does not explain any changes in the studied compensation forms. This result is not unexpected given that option awards were not included in the study. The largest coefficients and positive levels of significance were found on the relationship between international diversification and CEO compensation although it was not the main thrust of the study. Therefore this confirms that performance is not the most important determinant in the changes in CEO remuneration in South Africa.
Description
Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2015.