CEO pay-performance sensitivity in the South African context

Bussin, Mark

doi:10.17159/2222-3436/2015/v18n2a7

Cited by 5 publications

(7 citation statements)

References 33 publications

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“…Our findings refute the general notion of a unidirectional relationship between CEO pay and firm performance emphasized in studies from sub‐Saharan Africa. The existing studies in sub‐Saharan Africa (Hearn, , ; De Wet, ; Scholtz and Smit, ; Bussin, ; Deysel and Kruger, ; Hassan and Ahmed, ; Kurawa and Saidu, ; Yusuf and Abubakar, ; Olaniyi and Obembe, ; Aduda, ) believe that causation only runs from one to the other and not vice versa. It also negates the results of Omoregie and Kelikume () which established no causal links between CEO pay and bank performance in Nigeria.…”

Section: Empirical Results and Discussionmentioning

confidence: 99%

“…Furthermore, empirical studies on the relationship between CEO pay and firm performance from sub‐Saharan Africa are sparse. Specifically, Hearn () examined it for North African IPO firms; Hearn () concentrated on West Africa; De Wet (), Scholtz and Smit (), Bussin (), and Deysel and Kruger () focused on South Africa; Obembe et al, (), Adenikinju (), Hassan and Ahmed (), Kurawa and Saidu (), Yusuf and Abubakar (), Olaniyi and Obembe (), Osazuwa et al (), and Oyerogba et al () explored the case of Nigeria; while Aduda (), Erick et al (), and Ruparelia and Njuguna () considered Kenyan financial listed firms. Aside from the sparseness of studies in Africa, the bulk of these studies only examined the effect of one on the other, neglecting the possibility of feedback effect.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Olaniyi¹,

Obembe²,

Oni³

2017

African Development Review

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This study examines the causal relationship between CEO pay and firm performance in Nigeria for the period 1998-2010, using annual data of 63 non-financial listed firms. We adopt a two-step dynamic generalized method of moments to explore the causal relationship. The study establishes a bi-directional relationship between CEO pay and firm performance. While CEO pay Granger-causes firm performance, firm performance also Granger-causes CEO pay. It implies that CEO pay acts both as a reward and a performance motivator. This study therefore suggests that CEO pay effectively aligns shareholders' interests with those of CEOs; hence stakeholders should focus more on CEO pay as a corporate governance mechanism to reduce agency problem in non-financial listed firms in Nigeria. 429Moreover, following the two modelling strategies, empirical studies on the relationship between CEO pay and firm performance occupy a substantial portion of economic literature, most especially in advanced countries and emerging economies with limited attention from developing countries and sub-Saharan Africa in particular. Meanwhile, previous empirical investigations have continued to yield conflicting results. Some of these studies have obtained a weak or negative relationship or none at all (Jensen and Murphy, ). Results continue to differ depending on the environment, methodology and the measures of firm performance adopted in various studies.Apart from the inconclusiveness of previous studies, the bulk of these studies ignored the effect of executive pay on firm performance, despite the fact that motivation is the main rationale for executive pay packages. This was hinted at by Jensen and Murphy (1990) who stated that executive pay is 'designed to give manager incentives to select and implement actions that increase shareholders' wealth'. Moreover, Buck et al. (2008) and Tosi et al. (2000) contended that all studies surveyed, most especially in Europe, used pay as the dependent variable which means firm performance is considered a determinant of executive pay, neglecting the possibility of feedback effect from pay to performance. The prevalence of long-term incentives (equity incentives), such as stock awards and options, for managers in Europe has made it extremely difficult to separate reward from motivation (Buck et al., 2008;Jegede, 2012;Olaniyi and Obembe, 2015;Liang et al., 2016;Omoregie and Kelikume, 2017). Hence, the majority of empirical studies from advanced countries focused on the effect of firm performance on directors' compensation (performance-based pay) without exploring the possibility of feedback. Meanwhile, executive directors of publicly traded firms in developing countries, most especially sub-Saharan Africa, are usually paid in cash, not in the form of long-term incentives such as equity-based pay. This gives ample opportunity to examine CEO pay as a factor that determines firm performance (Buck et al., 2008). Globally, only few studies (Choo and Tan, 2004;Buck et al., 2008;Omoregie and Kelikume, 2017; Amdouni, 2016) h...

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Section: Empirical Results and Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Olaniyi¹,

Obembe²,

Oni³

2017

African Development Review

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“…Full disclosure of remuneration paid to each executive director and NED must be made. Furthermore, King III does not constitute formal regulation—it is a code of good practice as opposed to statutory legislation where legal sanctions are applied for noncompliance (Bussin, 2015).…”

Section: Literature Reviewmentioning

confidence: 99%

Financial distress and non‐executive director compensation: Evidence from state‐owned enterprises in South Africa post King III

Emuron

Tian

2020

African Development Review

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Using a sample of South African state-owned enterprises (SOEs), we examine the pre-and post-period impact of King III on non-executive director (NED) compensation with emphasis on financially distressed SOEs. This paper adopts a difference-indifferences analysis technique with repeated measures as the basis for testing the hypotheses. The revised Altman Z-score model which incorporates features unique to emerging markets is used to measure financial distress. Our findings indicate that SOEs that adopted King III will increase NED compensation when the firm has a positive performance and will severely penalize NED when the firm faces financial distress. This study highlights the importance of well-crafted corporate governance policies. It further sheds light on the importance of King III and how its implementation may prove vital for the success of an enterprise.

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“…They note that the median US CEO was paid $1 600 000 in 2008 and say that this is not excessive given the responsibilities of the role. Studies in South Africa find average annual CEO remuneration to lie between R6 200 000 and R7 700 000, depending on the industry (Nel 2012;Shaw 2012;Bussin 2015). Bruce, Buck and Main (2005) disagree with Larcker and Tayan (2011) on the point that pay-for-performance is self-evident.…”

Section: Ceo Remuneration and Corporate Performancementioning

confidence: 99%

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

Bussin¹,

Barrett²

2019

AJER

Self Cite

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South Africaâ€™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.

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CEO pay-performance sensitivity in the South African context

Cited by 5 publications

References 33 publications

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Analysis of the Nexus between CEO Pay and Performance of Non-Financial Listed Firms in Nigeria

Financial distress and non‐executive director compensation: Evidence from state‐owned enterprises in South Africa post King III

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

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