Board remuneration, directors’ ownership and corporate performance: the South African evidence

ABSTRACT

Excessive directors’ remuneration is usually cited as one of the drivers of the massive income inequality prevalent in South Africa. We draw insights from agency and board power theories to establish whether board remuneration, directors’ shareholding and the interaction between the two factors influences an entity's financial performance. Based on the examination of 1,736 company-year observations obtained from entities traded on the Johannesburg Stock Exchange, for the period 2005–2018, we find direct (no) relationship between remuneration of directors (directors’ shareholding) and an entity's financial performance. Our findings suggest that firms that provide higher, or even excessive, incentives to their directors tend to post superior financial performance; firms can employ directors’ remuneration as a governance tool to induce board effectiveness.

KEYWORDS:

• Board remuneration
• directors’ shareholding
• financial performance

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Due to the unavailability of disaggregated data, we do not make a distinction between executive and non-executive directors in this study. Thus, the phrase ‘board remuneration’ in this paper denotes the total compensation paid to both executive and non-executive directors. Likewise, the phrase ‘directors’ shareholding’ denotes the proportion of shares owned by (executive and non-executive) directors.