Original Research

Chief Executive Officer and Chief Financial Officer compensation relationship to company performance in state-owned entities

Mark H.R. Bussin, Marvin Ncube
South African Journal of Economic and Management Sciences | Vol 20, No 1 | a1644 | DOI: https://doi.org/10.4102/sajems.v20i1.1644 | © 2017 Mark H.R. Bussin, Marvin Ncube | This work is licensed under CC Attribution 4.0
Submitted: 06 August 2016 | Published: 30 October 2017

About the author(s)

Mark H.R. Bussin, Gordon Institute of Business Science, University of Pretoria, South Africa
Marvin Ncube, Gordon Institute of Business Science, University of Pretoria, South Africa

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Background: Optimal contracting continues to dominate boardroom and dinner discussions worldwide in light of the 2008 global financial crisis and especially in South Africa, due to the growing income gap. Increased scrutiny is being placed on South African state-owned entities (SOEs), as a result of the seemingly poor performance of SOEs. Some of the SOEs are reported to have received financial bailouts from taxpayers’ money, while executives are raking in millions of rands in remuneration, provoking some concerns on the alignment of executive pay to company performance in SOEs.

Aim: The study will assist remuneration committees and policymakers in the structuring of executive pay in SOEs to ensure alignment to company performance.

Setting: The study sought to assess, based on empirical evidence, if there is a positive relationship between Chief Executive Officer (CEO) and Chief Financial Officer (CFO) remuneration and company performance in South African SOEs in the period between 2010 and 2014. All 21 Schedule 2 SOEs were included in the study.

Methods: The research was a quantitative archival research methodology. Correlation and multiple regression analysis were the main statistical techniques used in this study.

Results: Contrary to popular media, a positive relationship between CEO and CFO remuneration (fixed pay and short-term incentives) and company performance in SOEs was observed. Company size appears to be the key determiner of fixed pay in SOEs. The positive relationship was mainly noted on absolute profitability measurements like EBITDA (earnings before interest and tax and depreciation and amortisation) and net profit.

Conclusion: SOE remuneration committees and policymakers should maintain the positive relationship; however, more emphasis should be placed on financial efficiency measurements so as to enhance efficiencies in SOEs.


chief executive officer pay; chief financial officer pay; state owned entities; company performance; pay-performance relationship


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