Corporate governance, CEO compensation and total shareholder returns in South Africa

Abstract

The on-going displeasure displayed by the media and business commentators, relating to apparent excessive and unwarranted executive directors' salaries, has increased since the financial turmoil experienced in 2008. The commentaries and reports suggest that corporate governance interventions are not strong enough to curb the excessive remuneration packages awarded to executives and specifically to Chief Executive Officers (CEOs). The purpose of the research is to examine the factors that determine and/or shape the relationship between the Chief Executive Officer's (CEO's) compensation and the wealth created for shareholders. The investigation further seeks to find the corporate governance elements, systems and processes that assist in monitoring the CEO's remuneration and performance contract. The null hypothesis is that poor corporate governance prevails in South African listed companies resulting in CEO compensation not being aligned to shareholder wealth creation. The aim is to establish the effectiveness of South African listed companies' adherence to corporate governance measures in addressing the principal/agent problem, commonly referred to as the agency problem. The research embraces a sample of the top 100 actively trading companies listed on the Johannesburg Stock Exchange (JSE) using secondary data. The study builds on existing theories and provides knowledge from a South African perspective.