The determinants of CEO compensation from a governance framework : the case of South African firms

Abstract

In the field of corporate governance, the phenomenon of executive compensation is highly contentious and receives a great deal of attention. CEO’s have come under extensive scrutiny with respect to the ever increasing compensation packages which they receive. In fact, this lies at the centre of the Principal-Agent problem where the incentives given to the CEO must be structured in such a way the he or she delivers the maximum possible shareholder value. The value of these incentives are typically well above that of the average worker, which is where all the contention stems from. However, practitioners recognise that being a CEO is a highly demanding job where companies are willing to pay top dollar to attract and retain the best. The level of CEO Compensation varies depending on region and culture, with much having been documented on the issue in Western societies especially. This paper will veer off the traditional course and instead examine the phenomenon of CEO pay in the South African context. The purpose is to assess how established theories, Western in origin, hold up in an emerging market framework. Like any researcher, I hope that this will be an insightful experience for myself and that this body of work will contribute meaningfully to the existing body of literature in the field of executive compensation.