Browsing by Author "Crafford, Wessel Lourens"

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    The relationship between directors' remuneration and financial performance : an investigation into South African JSE-listed industrial firms
    (Stellenbosch : Stellenbosch University, 2015-12) Crafford, Wessel Lourens; Erasmus, Pierre; Stellenbosch University. Faculty of Economic and Management. Dept. of Business Management.
    ENGLISH ABSTRACT: For the past few decades the remuneration of directors has been in the spotlight, especially in view of the corporate scandals that occurred around the turn of the 20th century. Generally, managers need to manage firms in such a way that shareholders’ value is maximised. Unfortunately, shareholders of firms and the general public have the perception that directors are over-compensated, and that there is no relationship between the remuneration of directors and the financial performance of the firms to enhance shareholders’ value. A lack of transparency, inadequate disclosure by firms and remuneration committees’ conflict of interest are reasons cited for these perceptions. Although South Africa is ranked as a global leader in terms of its corporate governance practices, many firms still do not adhere to the King reports’ principles. This research study investigated whether a relationship exists between the remuneration of directors and the financial performance of firms. The firms selected for the study included both listed and delisted firms from the Industrial Sector of the Johannesburg Stock Exchange (JSE) for the time period 2002 until 2010. Ninety-three firms complied with the requirements to be included in the study. All these firms had effective remuneration strategies in place to promote financial performance and growth of the firms. Secondary data were collected for the nine consecutive years of the study period, representing a period prior to substantial changes in accounting and disclosure regulation that influenced the comparability of financial reporting of the firms. It is important to note that directors’ remuneration is not the only motivating factor for firm performance, but one of many. Directors’ remuneration and incentives should be optimally utilised to increase performance and growth in the firms, and it should not merely be a case of directors being overcompensated for services rendered. In order to operationalize directors’ remuneration, it was converted and subcategorised into four variables. These dependent variables for directors’ remuneration consisted of basic salary, bonuses (performance), gains on share purchases or share options and what was termed as “other” remuneration. “Other” remuneration included pension, medical, motor, and telephone allowances. To measure the financial performance of the firms, the following market and accounting measures were employed: turnover, earnings per share (EPS), total share return (TSR) and market value added (MVA). Analysing these variables’ data by means of selected descriptive statistical measures and inferential regression analysis, it appeared that the data were significantly skewed, but that financial performance of the firms was a strong determinant of the change in directors’ remuneration. Additional regression analyses were performed to investigate whether a lagged relationship existed between the dependent variable, namely directors’ remuneration, and the independent variables, as reflected by the various financial performance measures. Results from these regression analyses strengthened the findings of the study to show that a relationship existed between directors’ remuneration and the financial performance of the firms investigated.