Abstract:
The media regularly report a growing incidence of non-alignment of
executive pay and performance, and in some cases, no link between
the two whatsoever. The advent of new measures of shareholder
wealth such as economic value added (EVA) and market value added
(MVA) have allowed some companies to link executive remuneration
to shareholder wealth creation. The purpose of this study is to
test the relationship between executive remuneration of South
African listed companies and EVA and MVA, as well as traditional
performance measures such as return on assets (ROA) and return on
equity (ROE). The findings indicate that there is indeed a significant
relationship between executive remuneration and EVA and MVA, but
that the correlation is better between executive remuneration and
ROA and ROE. It is concluded that South African companies need
to shift the emphasis away from traditional performance measures
to value-creation measures when designing and implementing
executive compensation plans.
