Abstract
Orientation: Executive remuneration remains very much at the centre of academic and policy debates. There seems to be a lack of consensus on the origins of the substantial increase in executive remuneration.Research purpose: This study aimed to further explore the relationship between chief executive officer (CEO) remuneration and state-owned company (SOC) performance by investigating the year-on-year behaviour of the relationship. The observed trends regarding the direction and strength of the relationship inform business and economic occurrences that provide an organisation with an in-depth understanding of the relationship.Motivation for the study: The rationale for this analysis was to broaden the understanding of the behaviour of the relationship over a period by studying the year-on-year correlation coefficients.Research approach/design and method: This quantitative, longitudinal study collected secondary data from the annual reports of 18 Schedule 2 SOCs over the period 2006 to 2014. Spearman’s rank correlation coefficient was the principal statistical technique utilised in the study.Main findings: Overall, the results revealed a fluctuation in the relationship between CEO remuneration and SOC performance with turnover having the most stable relationship with both fixed pay and total remuneration.Practical/managerial implications: The use of discretion in the determination of CEO remuneration within SOCs is likely to attract attention considering the fluctuating, sometimes volatile, relationship between the constructs. This will create the motivation for dynamic-policy frameworks to ensure consistency and fairness.Contribution/value add: The value of this research is that SOC remuneration committees now have empirical evidence of the importance that turnover plays as a performance measure.
Highlights
South African state-owned companies (SOCs) have been plagued by financial misalignment and ineffective corporate governance (Timothy, 2018)
Many studies model the relationship over the period studied; this study investigates whether the year-on-year relationship between chief executive officer (CEO) remuneration and SOC performance has strengthened and/or changed the direction over time to provide an in-depth understanding of the behaviour within, and across, a year(s)
Because the objective of this study was to establish whether CEO remuneration varied according to SOC performance, the CEO remuneration components were the dependent variables, and the SOC performance components were independent variables
Summary
South African state-owned companies (SOCs) have been plagued by financial misalignment and ineffective corporate governance (Timothy, 2018). Taking into consideration that most of the Schedule 2 SOCs directly affect the lives of South African citizens because of the services and infrastructure they provide, poor governance as well as a dearth of financial sustainability at some of these SOCs placed them in the spotlight during the past few years (Accountant General South Africa, 2016). It is important to determine the year-on-year analysis of the relationship between chief executive officer (CEO) remuneration and business performance because of the division between ownership and management in these companies This leads to an agency problem, whereby managers follow their self-interest above the interest of stakeholders (Bognanno, 2014; Kang, Kumar, & Lee, 2006). This is true in the SOCs’ environment because the principal is unable to monitor the CEO as the agent (Li & Xia, 2007)
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