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

Figures & data

Table 1. Selected South African studies on the relationship between executive remuneration and performance.

Author(s) and year of publication	Research period	Measure(s) of executive pay	Measure(s) of performance	Empirical findings
Bradley (2013)	2006−2010	CEO salaries, bonuses and other compensation	ROA, ROE and EPS	No correlation between CEO compensation and any of the performance measures.
Shaw (2011)	2005−2010	Total remuneration (fixed pay and short-term incentives)	Profit after tax, earnings before interest, tax, depreciation and amortisation (EBITDA), ROE, EPS and total assets	Positive correlation between fixed pay and short-term incentives and total assets, EBITDA and profit after tax for financial services companies.
De Wet (2012)	2006−2010	Total remuneration	ROA, ROE, EVA and MVA	Positive associations with all the performance measures and total remuneration.
Scholtz & Smit (2012)	2003−2010	Short-term cash compensation	Total assets, turnover, EBITDA and volume weighted average share price	Positive link between cash compensation and total assets, turnover and volume weighted average share price for companies listed on the JSE’s Alternative Exchange.
Van Blerck (2012)	2002−2011	Total remuneration (excluding long-term incentives)	ROE, EVA and share price at year-end	Positive correlation between EVA and remuneration of selected executives of South African banks.
Bussin & Blair (2015)	2008−2012	Long-term CEO incentives	Capital employed, change in fixed assets, change in turnover, dividend per share, EBITDA, EPS, profits after interest and tax, change in share price and TSR	Positive associations noted at industry level between long-term CEO incentives and EBITDA, fixed assets, profit after tax and interest, capital employed, changes in share price and TSR.
Bussin & Nel (2015)	2006−2011	Guaranteed CEO cost-to-company (excluding long-term incentives)	Du Pont ROE	Negative relationship with ROE and the guaranteed CEO cost-to-company.
Bussin & Modau (2015)	2006−2012	Total CEO remuneration (excluding long-term incentives)	EPS, ROE, EVA and MVA	Inverse correlation between fixed pay and short-term incentives and both ROE and MVA. Direct and indirect correlations noted between fixed pay and EVA in several years. Direct correlation between EPS and short-term incentives.
Deysel & Kruger (2015)	2006−2012	Total CEO compensation	Share price, ROE, EBITDA, headline EPS	Positive correlation between CEO remuneration and the considered accounting and market-based performance measures.
Crafford (2015)	2002−2010	Total remuneration	Turnover, EPS, MVA and TSR	Positive links between total remuneration and turnover and MVA. Negative correlation between total remuneration and TSR.

Source: Authors’ own compilation

Table

H1:	There was a change in disclosure on performance evaluations conducted by selected JSE-listed companies over the research period.
H2:	There was a change in the acceptability of disclosures on performance evaluations conducted by selected JSE-listed companies over the research period.
H3:	There was a change in the depth of reporting on performance evaluations conducted by selected JSE-listed companies over the research period.
H4:	There was a change in disclosure on the executive pay-performance link by selected JSE-listed companies over the research period.

Table 2. Population and sample.

Year	Population^(a)	Sample
		Listed	Delisted^(b)	Total
2002	220	163	22	185
2003	200	175	11	186
2004	177	149	14	163
2005	169	150	8	158
2006	179	139	6	145
2007	212	133	6	139
2008	209	141	8	149
2009	204	144	6	150
2010	212	137	3	140
2011	208	137	7	144
2012	196	130	12	142
2013	188	143	9	152
2014	178	140	4	144
2015	170	139	0	139

(a) Data were sourced from the Bloomberg database as at 31 December of each year. The population included all companies that were listed on the JSE in the industrials, consumer services, consumer goods, technology, healthcare and telecommunications industries.

(b) A company was classified as delisted if it delisted from the JSE at any point during a particular year or in the last year that an annual/integrated report was available. These companies were included in the analysis to reduce survivorship bias. Companies that were suspended from the JSE at any point during a particular year were also classified as delisted.

Table 3. Considered industries.

Industry^(a)	% of sample
Industrials	39.65
Consumer services	25.98
Consumer goods	17.37
Technology	10.96
Healthcare	3.79
Telecommunications	2.25
Total	100.00

(a) During the research period, the JSE used two different systems to classify companies in terms of their business activities. From 1 June 2002 to 31 December 2005 the Exchange used the FTSE Global Classification. On 1 January 2006 they switched to the Industry Classification Benchmark. Given that there are considerable differences between the two classification systems, a number of the considered companies that were classified in one industry before 1 January 2006 had to be reclassified thereafter. The sample consisted of 260 unique companies.

Table 4. King II and King III recommendations on performance evaluations.

King II (applicable 2002−2009)

King III (applicable 2010−2015)

• The board, directors and board committees should conduct regular (at least annual) performance evaluations. • Self-evaluations should be reviewed by the nomination (or similar) committee. • The board should appraise the performance of the chairperson. • The chairperson (or independent deputy chairperson or appropriate committee) should assess the performance of the CEO.

Annual performance evaluations of the board, directors and board committees should be performed by the chairpersons (with the assistance of the company secretary) and/or independent service provider. The nomination committee should review the evaluation process and outcomes. The board should appraise the performance of the CEO against criteria developed based on his/her role and responsibilities. An overview of the appraisal process, results and action plans to address weaknesses should be disclosed in the company’s integrated report. A director should only be nominated for re-appointment after his/her performance and meeting attendance has been evaluated.

Source: Authors’ own compilation based on IoDSA (2002) and IoDSA (2009)

Table 5. GEE results: Performance evaluation disclosure and acceptability scores over the research period.

	Degrees of freedom^(a)	Disclosure		Acceptability
		Wald statistic	p-value	Wald statistic	p-value
Year	12	109.800**	0.000	124.114**	0.000
Size	1	78.107**	0.000	77.446**	0.000
Listing status	1	0.402	0.526	1.399	0.237
Year-listing status interaction	12	8.719	0.727	8.766	0.723

* Significant at the 5% level; ** Significant at the 1% level

(a) The limited number of delisted companies during the last part of the study period reduced the degrees of freedom.

Table 6. Details on performance evaluation disclosure and acceptability scores.

Year	Sample	Disclosure			Acceptability
		N	%	LS mean^(a)(b)	N	%	LS mean^(a)(b)
2002	185	41	22.16	0.340^f	33	17.84	0.240^f
2003	186	82	44.09	0.617^d,e	68	36.56	0.486^e
2004	163	87	53.37	0.665^d,e	80	49.08	0.581^c,d
2005	158	86	54.43	0.625^e	81	51.27	0.550^d,e
2006	145	85	58.62	0.618^e	80	55.17	0.545^d,e
2007	139	89	64.03	0.665^e	82	58.99	0.580^d,e
2008	149	103	69.13	0.709^d	97	65.10	0.638^c
2009	150	117	78.00	0.820^c	110	73.33	0.749^b
2010	140	114	81.43	0.845^b,c	111	79.29	0.803^a
2011	144	126	87.50	0.880^a,b,c	121	84.03	0.825^a
2012	142	129	90.85	0.904^a,b	123	86.62	0.841^a
2013	152	138	90.79	0.918^a	130	85.53	0.846^a
2014	144	133	92.36	0.924^a	128	88.89	0.871^a
2015	139	128	92.09	0.919^a	124	89.21	0.874^a

(a) Least square means ranged between 0 and 1. The LS mean score of each year was compared to the LS mean score of every other year over the research period for disclosure and acceptability respectively. Letters were assigned to show significant differences between years. If the same letter is present for two or more years, it implies that there was no significant difference between the year in question and other years with the same letter. For example: The letter ‘a’ in column 5 shows that the LS mean disclosure scores did not differ significantly in any years between 2011 and 2015. The same interpretation is applicable to the LS mean acceptability scores column. The letter ‘f’ in column 8 shows that the LS mean scores differed significantly between 2002 and all other years.

(b) Size was used as a control variable.

Table 7. Mixed model ANOVA results: Depth scores over the research period.

	Numerator degrees of freedom^(a)	Denominator degrees of freedom	F	p-value
Year	12	1014	5.150**	0.000
Size	1	1014	23.841**	0.000
Listing status	1	188	0.153	0.696
Year-listing status interaction	12	1014	0.709	0.743

* Significant at the 5% level; ** Significant at the 1% level

(a) The limited number of delisted companies during the last part of the study period reduced the degrees of freedom.

Table 8. Details on depth scores.

Year	Sample^(a)	1 (mentioned briefly)		3 (provided some detail)		5 (provided extensive explanation)
		N	%	N	%	N	%	LS mean^(b)(c)
2002	33	23	69.70	10	30.30	0	0.00	1.316^g
2003	68	45	66.18	22	32.35	1	1.47	1.661^f,g
2004	80	54	67.50	24	30.00	2	2.50	1.606^f,g
2005	81	49	60.49	29	35.80	3	3.70	1.735^e,f
2006	80	43	53.75	26	32.50	11	13.75	1.998^d,e
2007	82	40	48.78	29	35.37	13	15.85	2.117^c,d
2008	97	48	49.48	31	31.96	18	18.56	2.236^b,c,d
2009	110	54	49.09	30	27.27	26	23.64	2.395^a,b,c
2010	111	51	45.95	32	28.83	28	25.23	2.466^a,b
2011	121	53	43.80	49	40.50	19	15.70	2.346^b,c
2012	123	46	37.40	60	48.78	17	13.82	2.437^a,b
2013	130	58	44.62	52	40.00	20	15.38	2.302^b,c
2014	128	58	45.31	50	39.06	20	15.63	2.323^b,c
2015	124	42	33.87	58	46.77	24	19.35	2.644^a

(a) Depth scores were only assigned to companies that had an acceptability score of 1.

(b) Least square means ranged between 1 and 5. Letters were assigned to show significant differences between years. The same interpretation as explained previously applies.

(c) Size was used as a control variable.

Table 9. GEE results: Reporting on the executive pay-performance link over the research period.

	Degrees of freedom^(a)	Wald statistic	p-value
Year	11	13.691	0.251
Size	1	50.979**	0.000
Listing status	1	1.456	0.228
Year-listing status interaction	11	13.138	0.284

* Significant at the 5% level; ** Significant at the 1% level

(a) The limited number of delisted companies during the last part of the study period reduced the degrees of freedom.

Table 10. Disclosure on the link between executives’ pay and performance.

Year	Sample	N	%	LS mean^(a)(b)
2002	185	118	63.78	0.792
2003	186	128	68.82	0.821
2004	163	119	73.01	0.828
2005	158	122	77.22	0.837
2006	145	115	79.31	0.831
2007	139	107	76.98	0.808
2008	149	120	80.54	0.834
2009	150	126	84.00	0.857
2010	140	121	86.43	0.877
2011	144	129	89.58	0.905
2012	142	127	89.44	0.887
2013	152	132	86.84	0.876
2014	144	129	89.58	0.888
2015	139	126	90.65	0.889

(a) Least square means ranged between 0 and 1. No significant differences were noted between years, given the insignificant ‘Year’ Wald statistic for the overall period (refer to Table 9).

(b) Size was used as a control variable.

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