Abstract
M.Comm.
Although there has been extensive research done on agency theory and in particular
the relevance of agency predictions on executive remuneration, the focus of these studies has generally been on public companies. These research studies have mainly centred on quantitative methods using regression analysis techniques to explore the relationship between various financial performance variables and remuneration variables. The consistency of the findings with agency theory in these studies suggests the importance of remuneration schemes in the agency conflict. In relation to state owned enterprises (SOEs), the extent to which the predictions of agency theory can be applied in determining the relationship between financial performance and executive remuneration within these entities is limited. This study is therefore aimed at determining the relationship between financial performance and executive remuneration in South African SOEs within the context of agency theory using (net) profit, revenue and total assets as measures of financial performance.
The findings show that in line with previous studies, the positive relationship between
financial performance and executive remuneration in South African SOEs is consistent with the tenets of agency theory. Significantly, the results obtained in such a study could have pertinent policy applications in ensuring the negative impact of the principal-agent relationship in SOEs is minimised and executive remuneration schemes are designed to alleviate some of the costs arising from the agency relationship by aligning as far as possible the interests of the principal (the Government) and the agent (executive management).