Abstract
Orientation: Executive remuneration remains a controversial topic. A major concern is the perceived misalignment of executive remuneration with company performance. Key performance indicators (KPIs) represent the strategic focus areas that drive a company’s performance. Aligning executive remuneration, especially the long-term incentives (LTIs), with KPIs is, therefore, paramount in attaining company performance objectives. Research purpose: This study assessed the alignment of chief executive officer (CEO) LTI objectives and company KPIs for mining companies listed on the Johannesburg Stock Exchange (JSE). Motivation for the study: Prior research focused mainly on the relationship between short-term executive remuneration and company performance. The present study provides insights into the composition of CEO remuneration and whether CEO LTI objectives are aligned with company strategy. Research approach/design and method: The sample comprised 34 mining companies for the period 2010–2016. A standardised methodology was applied to measure LTIs and statistical techniques (descriptive statistics and a ratings analysis) were applied to assess the alignment between CEO LTI objectives and company KPIs. Main findings: Chief executive officer remuneration showed an increasing trend, with LTIs contributing more towards total CEO remuneration towards the end of the research period. A weak to moderate alignment was found between CEO LTI objectives and company KPIs. Practical/managerial implications: Improved, transparent governance is required to address the opaque disclosure on the alignment between company KPIs and the objectives of CEO LTIs. Contribution/value-add: The study demonstrated that annual (and integrated) report disclosures generally do not clearly describe company strategy (reflected by KPIs) nor is the link between KPIs and CEO LTI objectives always evident. Stakeholders thus may well question whether CEO remuneration is aligned to attaining sustainable company performance.
Highlights
SettingThere is a growing sense of disquiet amongst shareholders, as well as the general public, about executive remuneration models, which are not being aligned with company performance objectives
In addressing the first secondary research objective, descriptive statistics were performed on chief executive officer (CEO) remuneration, and the composition of CEO remuneration based on total annual remuneration (TGP+short-term incentives (STIs)+Gains on share options exercised (GAIN)+ALLOCATED) and total remunerations (TGP+STI+GAIN+BALANCE) were analysed to assess the trends over the 2010–2016 period
This study assessed the alignment between company key performance indicators (KPIs) and CEO long-term incentives (LTIs) objectives in the mining industry
Summary
There is a growing sense of disquiet amongst shareholders, as well as the general public, about executive remuneration models, which are not being aligned with company performance objectives. The aim of the present study is to assess the alignment between chief executive officer (CEO) LTI objectives and company strategy (as per disclosed company KPIs) in the South African mining industry. Studying the alignment between CEO LTI objectives and company KPIs within the mining sector is, relevant in the South African context. The present study will contribute to ‘pay for performance’ literature by measuring LTIs (by applying a standardised methodology) and assessing the alignment between CEO LTI objectives and company KPIs in the South African mining industry. The main objective of this study was to assess the alignment between CEO LTI objectives and KPIs in the South African mining industry for the period 2010–2016. In line with the exploratory nature of the study, the secondary research objectives firstly provided the context for LTIs (by measuring LTIs and comparing the trend in CEO STIs and LTIs over time); secondly identified KPI disclosure practices over time and thirdly assessed whether there was alignment between disclosed KPIs and CEO LTI objectives
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