Sensitivity of guaranteed cost to company of CEOs in the South African retail and consumer goods sector

Abstract

ORIENTATION: This study was aimed at obtaining a clearer understanding of the relationship between company financial performance and CEO guaranteed cost to company in the South African retail and consumer goods sector.RESEARCH PURPOSE: The purpose of this study was to gain an understanding of the relationship between company financial performance in terms of the DuPont analysis and the guaranteed cost to company of the CEO.MOTIVAION FOR THE STUDY: This study was motivated to by the need to gain a better understanding of the effects of the global financial crisis in 2008 on the relationship between company financial performance and CEO guaranteed cost to company.RESEARCH DESIGN AND APPROACH: The research was a quantitative archival study of companies listed on the JSE for a period of six years, from 2006 – 2011. The statistical analyses included regression and correlation analysis.FINDINGS: The main findings of the research are that CEO guaranteed cost to company has shown no sensitivity towards company financial performance in terms of the 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 of the companies and the guaranteed cost to company of the CEOs in the retail and consumer goods sector during this period.PRACTICAL MANAGERIAL IMPLICATIONS: The findings suggest that there is little alignment between company strategy and performance, on the one hand, and guaranteed cost to company of the CEO, on the other. This negatively affects stakeholders and falls of meeting their expectations of the company. An independent and competent remuneration committee is required to ensure alignment of the interests of a company with those of its leader in this regard.