Executive Reward Structure and Financial Performance of Listed Companies in the Nairobi Securities Exchange, Kenya

Abstract

Studies have reported positive and significant relationship,that is, positive relationship between executive fixed pay, cash bonus, stock options and company’s financial performance; others negative and significant relationship, while others no significant relationship. In view of4this, the4 study4 sought4 to4 establish4 the4 relationship4 between4 executive4 reward4 structure4 and4 financial4 performance4 of4 listed4 companies4 at4 the4 Nairobi4 Securities4Exchange, Kenya. The investigation's precise goals were to establish the impact of executive base pay, bonuses, and non-cash incentives, as well as executive7 stock7options, on7 the7 financial7 performance7 of7 firms7listed7 on7the Nairobi Securities7Exchange7in7Kenya.The research also determined if the rate of inflation had a moderating influence on the association between CEO compensation and financial performance of Nairobi securities exchange-listed businesses. Stakeholder theory, agency theory, marginal productivity theory, and managerial power and governance theory were all used in this research. In this study, the positivist philosophy was applied, as well as a causal research design. The target population was all 65 listed businesses on the Nairobi Securities Exchange in Kenya, and a census was conducted. The research employed panel secondary data from annual financial statements of NSE-listed businesses. The study finding indicated that all the study variables except for inflation had a positive correlation with with financial performance of listed firms. However it is basic pay, bonuses and non cash benefits that had a positive and significant effect on the financial performance of listed firms. The effect of executive share options was positive but insignificant at 5% level of significance. Equally the effect of inflation was negative but insignificant. However, inflation has a signinificant effect as a moderator in the relationship7 between7 executive7 rewards7 and7 financial7 performance7 of7 listed7 firms7 at7 the7 Nairobi7 Securities7Exchange.Its is on the basis on of this findings that the study recommends that listed firms need to tailor their executive compensation and reward schemes to performance to encourage the top executives to continuous work hard and achieve their performance targets. Keywords: Executive reward structure, executive basic salary, executive bonuses, executive non-cash benefits, executive stock options, inflation rate, financial performance.