Executive performance evaluation and remuneration: Disclosure and practices of selected listed South African companies (2002−2015)

Abstract

Given growing inequality in South Africa, shareholders are increasingly questioning the size and composition of executive remuneration packages. They are also demanding greater transparency on the criteria and processes used to award performance incentives. The researchers hence investigated the extent and depth to which a sample of companies listed on the Johannesburg Stock Exchange (JSE) disclosed details on their executive performance evaluations. Attention was furthermore given to whether these companies reported a link between their executives’ pay and performance. The criteria and time frames used to evaluate and reward executive performance were also explored. Content analysis was performed on 2 136 annual/integrated reports over the period 2002 to 2015. Semi-structured personal interviews were also conducted with six directors serving on local remuneration committees. Controlling for company size, a significant increase was noted in the number of JSE-listed companies that disclosed information on their executive performance evaluations over the research period. The depth of these disclosures, however, remains superficial. As such, shareholders are constrained in their ability to hold remuneration committees accountable. These committees are encouraged to adopt a wider range of performance criteria and re-assess their focus on short-term performance. It is also suggested that commerce educators cultivate an appreciation for long-term, sustainable value creation among graduates.

Keywords:

• Executive remuneration
• Performance-based incentives
• Performance evaluations
• King II
• King III
• Remuneration committees
• Shareholder activism

JEL Classification:

• M12 Personnel management
• Executives
• Executive compensation

Acknowledgements

The authors would like to thank Mr Bryce Harding, Mr Niel de Kock and Ms Blanche-Mari Staal for their assistance in collecting some of the data. We are also grateful for the valuable inputs of Prof. Martin Kidd, Ms Ruth Albertyn, Prof. Pierre Erasmus and Mr Dewald Smit. A word of thanks is furthermore extended to Ms Michele Boshoff for her assistance with the language editing.