An analysis of the remuneration of CEOs of JSE listed companies in South Africa in relation to company performance
Date
2018
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Abstract
Following recent crises in both the global and South African economy, the
spotlight has turned to the seemingly exorbitant remuneration packages earned by
CEOs. These packages often contain large bonuses, which are seen, by the
general public, as being paid regardless of company performance. This research,
therefore, seeks to describe the relationship between the remuneration that CEOs
receive and the performance of the company. This study tests the relationship
between company performance and both the total package as well as the
proportion of the package that is linked to performance. As CEO remuneration is
required to be reported for all JSE listed companies, a full analysis of the
remuneration of CEOs for the top 40 JSE listed companies can be performed. In
this study, company performance is measured by means of EBITDA, EPS, and
ROCE to provide an indication of income, shareholder value and the creation of
value respectively.
Performing a correlation and regression analysis reveals that there is a significant
but weak relationship between CEO remuneration and EBITDA, but not with EPS
and ROCE. Possible reasons for this relationship include the ability of the CEO to
influence the income in the short term, whereas EPS and ROCE may require
longer terms to show visible effect. This suggests that in a period of approximately
5 years, the level and composition of CEO remuneration is only related to short
term, income based company performance. Shareholders that wish to incentivize
CEOs should, therefore, look to factors other than remuneration based on these
high level company performance metrics.
Description
MBA Thesis
Keywords
Executives -- Salaries, etc. -- South Africa. Corporate profits -- South Africa. UCTD