The relationship between non-executive directors' remuneration and financial performance of companies listed under the financial sector of the Johannesburg stock exchange

Abstract

The role of the Non-Executive Director (NED) has been questioned after many corporate collapses globally. NEDs in line with corporate governance codes bring independence to the board which should enhance monitoring as well as experience and distinguished networks that should benefit firm performance. Literature identified that NED remuneration has not had in-depth research conducted about it and that there was a lack of research about corporate governance issues in a South African context. The study investigates the NED remuneration and its impact on company performance in the financial services sector in South Africa. A quantitative study was performed on secondary data gathered over a ten year period (2006 - 2015) for NED remuneration and company performance measures. Company performance was measured by selected accounting metrics, ROA and ROE, and market metrics Tobin's Q and EVA. Correlation analysis was performed to determine if a relationship existed. It was found that there is a positive relationship between NED remuneration and company performance measured by accounting metrics and that there was no relationship between NED remuneration and company performance measured by market metrics. This indicates that investors do not place value on NED remuneration and the impact it has on improving firm value.