An analysis of the remuneration of CEOs of JSE listed companies in South Africa in relation to company performance

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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.
MBA Thesis
Executives -- Salaries, etc. -- South Africa. Corporate profits -- South Africa. UCTD