Examining the relationship between executive remuneration and company performance of retail companies listed on the Johannesburg Stock Exchange Limited.

Abstract

Executive remuneration is a contentious subject in the South African private sector and globally and is a significant concern for the public, shareholders, and policymakers. There is considerable outcry from the public, government, and media over the pay-for-performance schemes for executives. The uproar is focused on the subsequent disproportionately higher salaries and bonuses they earn (executives) compared to employees in the same organisation. This research study explored the relationship between executive pay and company performance for South African retail companies listed on the JSE. The agency theory was used to understand the underpinnings of the relationship between executive remuneration and company performance indicators. Company performance was assessed using total assets, turnover, earnings before interest taxation and amortisation (EBITDA) and earnings per share (EPS). The study focussed on 16 retail companies that met the inclusion criteria. An Excel dataabstraction tool collected data on short-term executive pay and company performance measures from the selected companies' integrated annual reports. The integrated annual reports were accessed online through the McGregor Bureau for Financial Analysis and the Bloomberg database from the KwaZulu-Natal Library. The analysis comprised descriptive statistics, Spearman’s correlation and multiple regression methods. From the integrated annual reports, all selected companies adhered to South African corporate governance guidelines on public disclosure of executive compensation. Each company had independent non-executive directors who proposed compensation packages for the executives and senior management. From Spearman’s correlation analysis, executive remuneration and total assets, turnover, and EBITDA had a weak to moderate positive correlation. Executive remuneration had a weak negative correlation with EPS. Furthermore, the multiple regression analysis established a statistically significant relationship between executive pay and EBITDA (p < 0.05). These findings provide valuable insights into the ongoing discussion on the appropriateness and effectiveness of performance-based remuneration strategies in South African JSE-listed retail companies. Implicitly, the study findings emphasise the need for careful consideration when selecting company performance measures to link with executive remuneration. Future research could provide more insights by exploring the connection between executive pay and nonfinancial company performance measures.