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

Abstract

Orientation: Over the years, the increase in executive remuneration in both the private sector and state-owned entities (SOEs) has been the subject of intense discussions. The poor performance of some SOEs with highly remunerated executives begs the question whether chief executive officers (CEOs) in South African SOEs deserve the high levels of remuneration they receive. Research purpose: The main purpose of the study was to determine whether there is a relationship between CEOs’ remuneration and company performance in South Africa’s Schedule 2 SOEs. Motivation for the study: A greater understanding of the relationship between CEO remuneration and organisational performance would expand knowledge when developing optimal CEO remuneration systems to ensure sustainability of SOEs in the South African context. If a relationship exists, it could justify the high remuneration received by CEOs. Research design, approach, and method: This quantitative, longitudinal study, conducted over a nine-year period, collected secondary data from the annual reports of 18 Schedule 2 SOEs. The primary statistical techniques used in the study included were OLS multiple regression analysis and correlational analysis on a pooled dataset. Main findings/results: The primary finding was that there is a relationship between CEO remuneration and company performance (mainly an inverse relationship), with no consistent trend between the constructs. Turnover appears to be an important component, as it was the most stable measure of company performance during the study period. The results indicate that the CEOs’ remuneration continued to increase, even when the SOEs were performing poorly. Practical managerial implications: Since the study focused on the relationship between CEOs’ remuneration and company performance, it may aid policymakers in forming new rules and regulations that would help improve the country’s economic performance while attracting international investors. Contribution/value-add: The study provides new knowledge to the limited research available on SOEs in South Africa. Further, this research focused on three different components of CEOs’ remuneration, thereby shedding more light on the relationship between their remuneration and company performance.