BACKGROUND : The executive directors of a company are the agents of the shareholders and
should manage the company in the best interest of the shareholders, not only for personal
gain. It is therefore important for companies to ensure that they implement remuneration
policies which will result in motivated employees who will execute decisions and actions
which are in the best interest of the shareholders. However, it is widely acknowledged that the
relationship between company performance and executive remuneration is weak. This implies
that executives are still rewarded excessive remuneration regardless of the performance of
AIM : The purpose of this study was to determine whether a relationship exists between the
performance-based remuneration of executive directors and the financial performance of
South African companies.
SETTING : The study was conducted in South Africa, specifically on companies listed on the
Johannesburg Stock Exchange.
METHODS : The study design was quantitative and made use of a Pearson correlation and
generalised least squares regression with bootstrapping at a 95% confidence interval to analyse
the relationship between executive director remuneration and the financial performance of
42 companies in the consumer goods and services industry of the Johannesburg Stock Exchange
(JSE) from 2006 to 2015.
RESULTS : The study established that the remuneration policies in place for South African
executive directors within the consumer goods and services industry seem to be affected by
the share price of the company.
CONCLUSION : In the South African environment, executive director remuneration is thus
not directly related to profitability or company size, as was the case in some earlier studies. The link between executive director remuneration and share performance may be an indication
that remuneration policies are based on the share price and are thus directly connected to the
principle of shareholder wealth maximisation.
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