The relationship between CEO compensation and firm performance: A case study of Namibian State-Owned-Enterprises (SOEs)
Loading...
Date
2019
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of Namibia
Abstract
Over the years, the increase in executive remuneration in both the private sector and state-owned entities (SOEs) has been the subject of intense discussions. The poor performance of some SOEs with highly remunerated executives, begs the question whether chief executive officers (CEOs) in Namibian SOEs deserve the high levels of remuneration they receive. The main purpose of the study was to determine whether there is a relationship between CEOs’ remuneration and company performance in Namibia’s SOEs in particular the 18 Commercial Public Enterprises as per the Hybrid Model of 2016 classification A greater understanding of the relationship between CEO remuneration and organisational performance would expand knowledge when developing optimal CEO remuneration systems to ensure sustainability of SOEs in the Namibian context. If a relationship exists, it could justify the high remuneration received by CEOs. This quantitative study, conducted over a two-year period, collected secondary data from the annual reports of 14 selected Namibian SOEs. The primary statistical techniques used in the study included were descriptive statistics and correlational analysis on a pooled dataset. The primary finding was that there is a relationship between CEO remuneration and company performance (mainly an inverse relationship), with no consistent trend between the constructs. Return on equity appears to be an important component, as it was the most stable measure of company performance during the study period. The study period was from 2011-2015.The results indicate that the CEOs’ remuneration continued to increase, even when the SOEs were performing poorly. Since the study focused on the relationship between CEOs’ remuneration and company performance, it may aid policymakers in forming new rules and regulations that would help improve not only the governance of the SOE industry but also the country’s economic performance while attracting international investors. The study provides new knowledge to the limited research available on SOEs in Namibia. Further, this research focused on three different components of CEOs’ remuneration, thereby shedding more light on the relationship between their remuneration and company performance.The limitations of the study was that due to the sensitivity of the study embarked many of the respondents where sceptical to provide responses and would defer the responsibility and also the unavailability of published financials post a hinderance to make conclusive recommendations. Of the
recommendations made is that the stakeholder (Government) needs to ensure that CEO’s sign and have in place performance agreements, and have set quantifiable targets for this commercial entities and the bottom-line needs to become the focus. There should also be remedial measures for non- performance of CEO’s. Reward (remuneration) must be linked clearly to Output (results).
Description
A thesis submitted in partial fulfilment of the requirements for the Degree of Master of Business Administration (Management Strategy)
Keywords
State Owned Enterprises, Compensation