The relationship between CEO renumeration and company performance in publicly listed organisations on the Johannesburg Stock Exchange (JSE) for the period 2008-2020

Abstract

Orientation: Chief executive officer (CEO) remuneration in South Africa and globally has attracted increased scrutiny and debate about the magnitude of pay and the rationale underpinning its determination. Despite extensive literature, the linkage between CEO remuneration and company performance remains inconclusive and appears to vary depending on context, remuneration and company performance variables. Research purpose: This study aims to determine whether there is a relationship between CEO remuneration and the company performance of Johannesburg Stock Exchange (JSE)-listed companies from 2008 to 2020. Motivation for the study: This study seeks to provide a deeper understanding of CEO pay–performance linkages, contributing to existing knowledge and offering practical insights for designing an optimal CEO remuneration philosophy. Research design, approach and method: This quantitative, longitudinal study relied on secondary data collected from company websites, published financial statements, and publicly listed organisations over a 13-year period. The sample comprised companies selected based on data availability and completeness for the study variables. Panel data analysis was used to examine the relationships between CEO remuneration and company performance. Based on the Hausman test results, a random-effects model was estimated using Panel Estimated Generalised Least Squares (EGLS) with Period Seemingly Unrelated Regression (SUR) weighting. To enhance robustness, the data were subjected to supervised cleaning, reliability checks, winsorisation at the 5th and 95th percentiles, and White diagonal standard errors were applied to address cross-sectional correlation. Main findings/Results: The results reveal that CEO remuneration and performance alignment were selective rather than uniform across the remuneration components and company performance measures examined. Net profit was not a statistically significant predictor of CEO remuneration. RSF emerged as the most consistent predictor, exhibiting a negative relationship with fixed pay and positive relationships with STI and total remuneration. EPS positively influenced fixed pay. The interaction effects between EPS and RSF, and between RSF and net profit, were consistently negative and statistically significant across all CEO remuneration components, whereas the interaction between EPS and ROA was not statistically significant. Company size, as proxied by market capitalisation, moderated the relationship between net profit and STI and strengthened the effects of ROA and RSF on fixed pay and total remuneration, but not on STI. Overall, the findings suggest that CEO remuneration is influenced by selected performance measures and contextual factors, rather than being uniformly aligned with all indicators of company performance. Practical managerial implications: The study supports the development of comprehensive remuneration and reporting frameworks that promote transparency and consistency in remuneration disclosure. Boards and remuneration committees may structure remuneration structures by including performance measures that support long-term value creation while ensuring that incentive structures do not reward overlapping performance variables. Contribution: The study contributes to executive remuneration literature by extending evidence on pay-performance relationship in South African context. By examining direct, interaction and moderation effects, it demonstrates that the pay-performance relationship is selective and more complex than direct pay-performance models alone.