Abstract
M.Comm. (Financial Management)
Although general studies have been conducted on the agency problem, such studies have not focused on the relationship between executive remuneration and company performance. Many of the studies conducted abroad have focused on quantitative methods using regression analysis to understand the relationships between diverse financial performance measures and a variety of performance appraisal techniques.
This study aims at establishing the relationship between executive remuneration and company financial performance on the basis of 20 of the largest companies listed on the Johannesburg Stock Exchange Ltd (JSE).
It has been observed that JSE-listed South African companies have almost a standard governance framework for determining salary structures of CEOs and directors. Furthermore it can be seen that most performance-linked payouts for CEO's and directors are based on measurement criteria established which are based on actual performance levels achieved.
For this reason, it may be concluded that short-term targets are crucial to keeping a business going, to ensure positive cash flows, manage working capital, and achieve year-on-year growth of revenues and profits. However, to ensure survival and sustainability of the business in the changing global and local environments, long-term strategies should be formulated and various steps should be taken by CEOs, supported by other executive and non-executive directors.
This research focuses on short-term goals and their influence on executive remuneration for CEOs and CFOs. The performance measures selected for this study were revenues, profits, share price and net asset value. These performance measures selected are supported by the relevant academic literature.
The results of this study reveal that CEOs and CFOs have received lower remuneration in the form of bonuses as a result of companies not achieving their short-term goals.