The year-on-year analysis of the relationship between chief executive officer remuneration and state-owned company performance in South Africa

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.