Relationship between CEO remuneration and company financial performance in the South African retail and consumer goods sector

Abstract

PURPOSE : This study was motivated by the need to better understand the effects of the global financial crisis in 2008 on the relationship between company financial performance and CEO guaranteed cost to company (CTC). The aim of this study was to understand the relationship between company financial performance using DuPont analysis and CEO guaranteed CTC in the South African retail and consumer goods sector. DESIGN : The research was a quantitative, archival study of companies listed on the Johannesburg Stock Exchange (JSE), measured over a period of six years (2006–2011). The statistical analysis included regression and correlation analysis. FINDINGS : The research found that CEO guaranteed CTC has shown no sensitivity towards company financial performance in terms of DuPont analysis over the six-year period, which included the global financial crises in 2008. Furthermore, a negative relationship existed between the return on equity and the guaranteed CTC of CEOs in the retail and consumer goods sector during this period. PRACTICAL IMPLICATIONS : The findings suggest that there is misalignment between company strategy and performance and the guaranteed CTC of CEOs. A practical implication would be to have independent and competent remuneration committees ensuring alignment of the interests of a company with those of its leaders in this regard.