The relationship between CEO remuneration and company performance in South African state-owned entities

摘要

Orientation: Over the years, the increase in executive remuneration in both theprivate sector and state-owned entities (SOEs) has been the subject of intensediscussions. The poor performance of some SOEs with highly remuneratedexecutives begs the question whether chief executive officers (CEOs) in SouthAfrican SOEs deserve the high levels of remuneration they receive.Research purpose: The main purpose of the study was to determine whether thereis a relationship between CEOs’ remuneration and company performance in SouthAfrica’s Schedule 2 SOEs.Motivation for the study: A greater understanding of the relationship betweenCEO remuneration and organisational performance would expand knowledge whendeveloping optimal CEO remuneration systems to ensure sustainability of SOEs inthe South African context. If a relationship exists, it could justify the highremuneration received by CEOs.Research design, approach, and method: This quantitative, longitudinal study,conducted over a nine-year period, collected secondary data from the annualreports of 18 Schedule 2 SOEs. The primary statistical techniques used in the studyincluded were OLS multiple regression analysis and correlational analysis on apooled dataset.Main findings/results: The primary finding was that there is a relationship betweenCEO remuneration and company performance (mainly an inverse relationship), withno consistent trend between the constructs. Turnover appears to be an importantcomponent, as it was the most stable measure of company performance during thestudy period. The results indicate that the CEOs’ remuneration continued toincrease, even when the SOEs were performing poorly.Practical managerial implications: Since the study focused on the relationshipbetween CEOs’ remuneration and company performance, it may aid policymakersin forming new rules and regulations that would help improve the country’seconomic performance while attracting international investors.Contribution/value-add: The study provides new knowledge to the limitedresearch available on SOEs in South Africa. Further, this research focused on three different components of CEOs’ remuneration, thereby shedding more light on therelationship between their remuneration and company performance.