Original Research

Relationship between executive remuneration and performance of South African mining companies

Tando O. Siwendu, Matthys J. Swanepoel, Olive Stumke
Journal of Economic and Financial Sciences | Vol 17, No 1 | a888 | DOI: https://doi.org/10.4102/jef.v17i1.888 | © 2024 Tando O. Siwendu, Matthys J. Swanepoel, Olive Stumke | This work is licensed under CC Attribution 4.0
Submitted: 12 May 2023 | Published: 23 January 2024

About the author(s)

Tando O. Siwendu, Department of Accounting Sciences, Faculty of Economic and Management Sciences, North-West University, Potchefstroom, South Africa
Matthys J. Swanepoel, Department of Accounting Sciences, Faculty of Economic and Management Sciences, North-West University, Potchefstroom, South Africa
Olive Stumke, Department of Accounting Sciences, Faculty of Economic and Management Sciences, North-West University, Potchefstroom, South Africa

Abstract

Orientation: Managers are supposed to manage companies to maximise shareholders’ wealth. Instead, there are long-standing perceptions that managers are rent extractors who maximise their own wealth, implying a misalignment between executive remuneration and company performance.

Research purpose: The purpose of this study was to determine the existence of a relationship between executive remuneration and the financial performance of South African-listed mining companies.

Motivation for the study: Executive remuneration significantly increased over the past five decades relative to company financial performance. The mining sector was selected due to its susceptibility to external factors and shocks leading to volatility in the financial performance of mining companies.

Research approach/design and method: This study was a quantitative archival study, using data from 2015 to 2021, by applying the hierarchical linear modelling technique at a 95% confidence level and a 5% significance level.

Main findings: The study found a weak to strong relationship between executive remuneration and company financial performance. Furthermore, an analysis of executive remuneration revealed an increase in short-term incentive payments and a decrease in the fixed salary as a proportion of chief executive officer remuneration.

Practical/managerial implications: Because the study found a strong link between executive remuneration and earnings-based financial performance metrics, governing bodies should ensure that financial performance metrics include cash flow-based financial metrics as company earnings are highly susceptible to management manipulation.

Contribution/value-add: This study contributes to the existing literature on executive remuneration and will be useful to researchers, shareholders, boards of directors, remuneration committees and policymakers.


Keywords

agency theory; chief executive officer; company financial performance; corporate governance; executive remuneration; mining sector.

JEL Codes

A12: Relation of Economics to Other Disciplines

Sustainable Development Goal

Goal 12: Responsible consumption and production

Metrics

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