A comparison analysis of CEO compensation related to shareholders value: South Africa versus China holding banks

Abstract

CEO’s compensation, as a global management problem, has been a matter of continuing argument in Western economies, over the last two decades. However, the relationship between CEO compensation and firm performance is still weak, resulting in the CEO overpaid problem being more severe, since the financial turmoil experienced in 2008. The purpose of this study was to investigate whether firm performance justifies CEO remuneration, by comparing South African and Chinese stock-holding banks. The motivation for this study was to understand the correlation between CEO remuneration and the value they added to shareholders. It was anticipated that the results would contribute to exploring whether CEOs were overpaid for what they produced, and help companies to adjust their compensation frameworks. The researcher employed a quantitative approach to ascertain compensation alignment with firm performance. The sample for this current research, from which the data were collected consisted of ten (10) banking institutions (5 South African and 5 Chinese). The findings for the South African banks revealed that the CEO’s remuneration was positively and significantly related to the firm performance; however, the strength of the relationship showed a declining tendency. Additionally, the non-apparent relationship between CEO compensation and firm performance for Chinese banks, indicated the weakness of the pay-performance structure in China. This result may help companies and shareholders to adjust the existing management system, and standardize executives’ responsibilities that would reduce, and avoid many enterprise management loopholes, while improving the development of the nation’s economy, and attracting foreign investors.