The effect of race on CEO pay-performance sensitivity in South Africa

Abstract

South Africa’s labour policies and the growing societal calls to better explain executive remuneration create a unique opportunity to examine the effects of race on CEO pay. This empirical research study sought to investigate the effects of race on the sensitivity of executive pay to corporate performance. The study aims to contribute to the literature by providing an evidence-based approach to understanding the effect of race on CEO remuneration. The research design was quantitative, descriptive and longitudinal in nature, utilising validated secondary data sources. The sample consisted of 19 black CEOs and a random sample of 45 white CEOs. All components of South African CEO remuneration studied were found to correlate strongly with PAT (Profit after Tax) and EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation) and to a lesser degree with ROE (Return on Equity) and HEPS (Headline Earnings per Share). Black and white CEO mean remuneration was found to show no significant difference as a result of race. A notable difference found was the higher degree of payperformance sensitivity and variability seen within the black CEO sample. The study showed that race does not affect the level of CEO remuneration but does impact on pay-performance sensitivity and variability.