Abstract:
ORIENTATION : Classic agency theory posits that the impact of uncontrollable factors should be
excluded from executive remuneration. Existing research, however, shows a departure from
this theory.
RESEARCH PURPOSE : This study sought to determine the approaches organisations take and the
reasons thereof to account for uncontrollable factors in the design of their executive incentive
schemes.
MOTIVATION FOR THE STUDY : There is little research in South Africa on how organisations account
for uncontrollable factors in the design of their incentive schemes.
RESEARCH APPROACH/DESIGN AND METHOD : An exploratory qualitative research using semistructured
interviews was conducted.
MAIN FINDINGS : South African organisations are not strictly conforming to the classic agency
theory prediction for uncontrollable factors as some allow the impact of uncontrollable factors
to be included, and further, hybrid approaches may be applied.
PRACTICAL/MANAGERIAL IMPLICATIONS : The menu of approaches presented will aid designers of
incentive schemes to identify a tried and tested approach to adopt or improve their incentiverelated
policies.
CONTRIBUTION/VALUE-ADD : An expanded list of uncontrollable factors identified from South
Africa’s uniqueness is presented. Models for (1) accounting for uncontrollable factors in
incentive schemes and (2) pay for individual performance versus firm performance dilemma
are presented. These add to the body of existing literature.
