Orientation: The available literature has revealed a polarised picture regarding the
effects of race on CEO remuneration. This division centres on whether race is a beneficial factor
or not with regard to the level and sensitivity of remuneration received. Introducing South
Africa’s affirmative labour policies and the growing societal calls to better explain executive
remuneration creates the unique opportunity
to examine the effects of race on CEO pay.
Research purpose: The purpose of the research centred on two important themes.
Firstly the research sought to investigate the effects of race on the sensitivity of
executive pay to corporate performance. Secondly the effects of race on the level and structure of
executive pay was probed.
Motivation for the study: The primary motivation of the study centred on determining whether race
is has an affect, if any, on the remuneration paid to CEOs in South Africa. This will assist in
understanding whether the affirmative polices implemented in South
Africa have made any impact in the top level of executive remuneration.
Research design: The study was designed to be quantitative, descriptive and
longitudinal in nature utilising valid secondary data sources. The BFA Macgregor online financial
database was selected as the most appropriate source of both corporate performance information and
directors’ remuneration. Nineteen black CEOs were identified along with a random sample of 45 white
CEOs. Following the data been analysed for reliability and validity it was then subject to primary
and secondary statistical tests to determine significance and correlation strength.
Main findings/results: All components of South African CEO remuneration studied were found to
strongly correlate to PAT and EBITDA and to a lesser degree ROE and HEPS. ROE and HEPS have shown
correlation strength growth in recent years. This collection of measures reflects a balanced basket
of accounting-‐based and non-‐
accounting based measures. Black and white CEO mean remuneration when compared
was found to have no significant difference due to race. A notable difference found
was the higher degree of pay-‐performance sensitivity and variability seen within the black CEO
Practical/Managerial implications: King III compels boards and remuneration committees to ensure
remuneration of directors is fair and reasonable, sensitive to performance and aligned with the
strategy of the organisation. Ensuring realistic pay-‐ performance sensitivities are not just a
corporate governance requirement but also help alleviate principle-‐agent issues while correctly
incentivising the CEO. Boards looking to appoint black or minority CEOs should continue to
remunerate in a equitable and fair manner and be aware of such mental biases such as the “inverse
Matthew effect” and other social out-‐group biases especially when evaluating
Contribution: The study showed that race doesn’t affect the level of CEO
remuneration but does impact on the pay-‐performance sensitivity and the variability. The
difference in sensitivity and variability could indicate the presence of mental biases such as the
“inverse Matthew effect” and other social out-‐group biases when