Abstract
Orientation: The level of chief executive officer (CEO) compensation and its relationship with organisational performance has generated considerable interest worldwide. In light of compromised mining productivity as a result of the recent labour unrest in South Africa, some commentators have questioned the justification of certain CEO compensation in the country’s mining industry.Research purpose: The primary purpose of this study was to describe the relationship between CEO compensation and organisational performance in the South African mining industry.Motivation for the study: A deeper understanding of the relationship would enhance knowledge when developing optimal CEO reward systems to ensure sustainability of the mining industry within the South African context.Research design, approach and method: The research was a quantitative, archival study involving 30 mining companies over a 5-year period. The statistical analysis techniques used in the study included analysis of normality variance and multivariate regression.Main findings: The main finding of the research was that there was a moderate to strong relationship between CEO compensation and organisational performance in the South African mining industry. However, operating expenses have progressively increased, putting performance under pressure. Furthermore, it was also found that organisation size plays an influential role in CEO compensation levels.Practical/managerial implications: While the CEO compensation appears to be generally aligned with the organisational performance, the findings suggest that boards of directors should focus on structuring reward systems more optimally to mitigate managerial rent seeking in large companies and unsustainability in smaller companies.Contribution/value-add: This study has contributed to the body of existing knowledge on executive pay for performance in the context of the South African mining industry. In addition, the study has demonstrated that the other measures related to non-performance need to be considered in executive compensation design. The study adds practical value in contributing to information for engagements with stakeholders such as organised labour on executive pay.
Highlights
The topic of executive compensation has been one that has generated interest and debate for over half a century
Results show that chief executive officer (CEO) compensation was positively linked with organisational performance, as each of the individual CEO compensation measures showed a moderate to strong positive relationship with the majority of performance measures considered
The measures of organisational performance that display a positive relationship with the fixed component of CEO compensation are ROA, market capitalisation, revenue and EBITDA. (In other words, an increase in the fixed component of CEO compensation was linked to an increase in ROA, market capitalisation, revenue and EBITDA.) The universal characteristics of these measures of compensation are that they are all linked with either revenue or the organisation size, which share a positive relationship
Summary
The topic of executive compensation has been one that has generated interest and debate for over half a century. There has been a dramatic increase in interest in the relationship between executive compensation and organisational performance over the past two decades (Rau 2017). The advent of increased corporate governance, including greater transparency over the nature and quantum of executive compensation, has led to new regulation worldwide. In the USA, the Securities and Exchange Commission has adopted rules which require companies to disclose the median pay of the workforce with that of the chief executive officer (CEO) and, the UK Government’s Green Paper on Corporate Governance Reform suggests pay-ratio disclosure (Deloitte 2017). Remuneration has been given far greater prominence in King IV, and it is clear that it is the Board’s responsibility to ensure fair and responsible executive remuneration practices (Deloitte 2017)
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