Academic journal article SA Journal of Human Resource Management

The Chief Executive Officer Pay–performance Relationship within South African State-Owned Entities

Academic journal article SA Journal of Human Resource Management

The Chief Executive Officer Pay–performance Relationship within South African State-Owned Entities

Article excerpt

Introduction

Key focus of the study

Questions such as ‘Are South African executives’ packages linked to performance?’ come to mind when reading various newspapers, as well as academic and business articles. Concerns regarding excessive remuneration packages of chief executive officers (CEOs) have been added to an ongoing concern about the widening gap between the remuneration of executives and ordinary employees, as well as their large termination payments with a perceived lack of justification (Theunissen, 2010).

The focus of this study was Schedule 2 state-owned entities (SOEs) in South Africa. State-owned entities play a vital role in the economies of many countries, and the outrage over what many consider to be excessive CEO remuneration warrants research and plays an important role throughout South Africa (Corporate Governance of State-Owned Enterprises in Africa, 2009). Despite the highly publicised incompetence and poor performance of some SOEs, convincing evidence proposes that SOEs remain relevant (Boko & Yuan Jian, 2011 ; Mbo & Adjasi, 2017).

Crafford (2012) postulates that various stakeholders hold diverse views regarding how SOEs should benchmark their remuneration. State-owned entities have mostly ignored the remuneration guidelines of the Department of Public Enterprises (DPE), which insists that they need to be benchmarked against the private sector (Crafford, 2012). In 2011, a new guideline was established, intended to serve as an improvement on the 2007 guideline. However, not all South African SOEs adopted and implemented the guidelines (Maloa & Bussin, 2016 , p. 10).

Background to the study

The link between pay and performance has for some time now come under increased scrutiny, from the media and the public as well as from an academic perspective, that excessive remuneration is not aligned with SOE performance (21st Century Pay Solutions, 2012). Two cases in point follow, the first being the R9467 million total remuneration (TR) that Brian Molefe – Eskom’s former acting CEO – received during the 2015/2016 financial year (Peyper, 2016). The TR packages that Eskom executives received during the 2015/2016 financial year amounted to R75.33m, compared to the R50.61m paid in the previous financial year (Peyper, 2016). Second, South African Airways’ (SAA) former suspended CEO, Monwabisi Kalawe, received almost R2.7m after his resignation (Majangaza, 2015).

Over and above the millions of rands paid out to SOE CEOs, government has had to ‘bail out’ a number of SOEs over the years to keep them afloat. For example, during 2015, Eskom received a R23 billion bailout from government (Fripp, 2015). South African Airways has been surviving on state-guaranteed loans for the past few years. In addition, SAA posted a loss of R1.5bn in the 2015/2016 financial year (Gerber, 2016). During 2017, the South African government announced that SAA will receive an undisclosed sum from the National Revenue Fund in order to pay back loans of approximately R2.3bn to Standard Chartered Bank (Rothpletz, 2017). Rothpletz (2017) reports that SAA, in total, has borrowed R19bn from government.

State-owned entities, unlike private companies, receive the larger part of their revenue from the National Treasury (who collects from the taxpayer) and are supposed to serve the public. However, the remuneration of top executives in SOEs seems to be competing with that of private companies. Consequently, consumers pay high tariffs for the products and services of SOEs such as Eskom, while consumers should be benefiting from the funding paid to Eskom by South Africa’s National Treasury (Ngwenya & Khumalo, 2012). In addition, the remuneration of CEOs of SOEs is of special importance to sustainable public service provision (Ngwenya & Khumalo, 2012 ; Papenfuss & Schmidt, 2016).

Research purpose

The focus of this study was on Schedule 2 SOEs in South Africa. …

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