Chief executive officer compensation sensitivity in the South African mining industry

Abstract

Orientation: The level of chief executive officer (CEO) compensation and its relationship with organisational performance has generated considerable interest worldwide. In light of compromised mining productivity as a result of the recent labour unrest in South Africa, some commentators have questioned the justification of certain CEO compensation in the country’s mining industry.

Research purpose: The primary purpose of this study was to describe the relationship between CEO compensation and organisational performance in the South African mining industry.

Motivation for the study: A deeper understanding of the relationship would enhance knowledge when developing optimal CEO reward systems to ensure sustainability of the mining industry within the South African context.

Research design, approach and method: The research was a quantitative, archival study involving 30 mining companies over a 5-year period. The statistical analysis techniques used in the study included analysis of normality variance and multivariate regression.

Main findings: The main finding of the research was that there was a moderate to strong relationship between CEO compensation and organisational performance in the South African mining industry. However, operating expenses have progressively increased, putting performance under pressure. Furthermore, it was also found that organisation size plays an influential role in CEO compensation levels.

Practical/managerial implications: While the CEO compensation appears to be generally aligned with the organisational performance, the findings suggest that boards of directors should focus on structuring reward systems more optimally to mitigate managerial rent seeking in large companies and unsustainability in smaller companies.

Contribution/value-add: This study has contributed to the body of existing knowledge on executive pay for performance in the context of the South African mining industry. In addition, the study has demonstrated that the other measures related to non-performance need to be considered in executive compensation design. The study adds practical value in contributing to information for engagements with stakeholders such as organised labour on executive pay.