The relationship between directors' remuneration and financial performance : an investigation into South African JSE-listed industrial firms

[摘要] ENGLISH ABSTRACT: For the past few decades the remuneration of directors has been in the spotlight,especially in view of the corporate scandals that occurred around the turn of the 20thcentury. Generally, managers need to manage firms in such a way that shareholders'value is maximised. Unfortunately, shareholders of firms and the general public havethe perception that directors are over-compensated, and that there is no relationshipbetween the remuneration of directors and the financial performance of the firms toenhance shareholders' value. A lack of transparency, inadequate disclosure by firmsand remuneration committees' conflict of interest are reasons cited for theseperceptions. Although South Africa is ranked as a global leader in terms of its corporategovernance practices, many firms still do not adhere to the King reports' principles. This research study investigated whether a relationship exists between theremuneration of directors and the financial performance of firms. The firms selected forthe study included both listed and delisted firms from the Industrial Sector of theJohannesburg Stock Exchange (JSE) for the time period 2002 until 2010. Ninety-threefirms complied with the requirements to be included in the study. All these firms hadeffective remuneration strategies in place to promote financial performance and growthof the firms. Secondary data were collected for the nine consecutive years of the studyperiod, representing a period prior to substantial changes in accounting and disclosureregulation that influenced the comparability of financial reporting of the firms. It is important to note that directors' remuneration is not the only motivating factor forfirm performance, but one of many. Directors' remuneration and incentives should beoptimally utilised to increase performance and growth in the firms, and it should notmerely be a case of directors being overcompensated for services rendered.In order to operationalize directors' remuneration, it was converted and subcategorisedinto four variables. These dependent variables for directors' remunerationconsisted of basic salary, bonuses (performance), gains on share purchases or shareoptions and what was termed as 'other remuneration. 'Other remuneration includedpension, medical, motor, and telephone allowances. To measure the financialperformance of the firms, the following market and accounting measures wereemployed: turnover, earnings per share (EPS), total share return (TSR) and marketvalue added (MVA). Analysing these variables' data by means of selected descriptive statistical measures and inferential regression analysis, it appeared that the data weresignificantly skewed, but that financial performance of the firms was a strongdeterminant of the change in directors' remuneration.Additional regression analyses were performed to investigate whether a laggedrelationship existed between the dependent variable, namely directors' remuneration,and the independent variables, as reflected by the various financial performancemeasures. Results from these regression analyses strengthened the findings of thestudy to show that a relationship existed between directors' remuneration and thefinancial performance of the firms investigated.

[发布机构] Stellenbosch University