ARE EFFICIENT CEOs HIGHER REMUNERATED? A DATA ENVELOPMENT ANALYSIS OF SELECTED JOHANNESBURG SECURITY EXCHANGE COMPANIES

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Abstract

The originality of the study is that performances of CEOs are estimated by determining how efficiently they convert their own remuneration and other key company input resources into a key performance output. Accounting-based data, with the Du Pont analysis as conceptual framework, were applied as the other company input and output determinants. The main purpose was to determine whether there is a difference in remuneration of CEOs who are efficient and inefficient, as estimated by data envelopment analysis. A sample of 167 Johannesburg Stock Exchange-listed companies, divided into large, medium and small, from the industrial and resource sectors is empirically investigated. According to the Student t test, the study found that there is no statistically significant difference between the remuneration of efficient and inefficient CEOs of large and small companies, but for medium-sized companies, the inefficient CEOs are statistically significantly higher remunerated. A possible reason for this contradiction is, inter alia, that market-based performance determinants were not taken into account, which could lead to a different conclusion. The practical implication is that an accounting-based model is developed for company boards, which should consider using accounting-based data more frequently to benchmark their CEOs’ remuneration, since not only are these data readily available to make comparisons with peers, but it can be influenced more easily by a CEO as in the case of market-based determinants.

Keywords: CEO Remuneration, Efficiency, Performance, Du Pont Analysis, Accounting-Based, Data Envelopment Analysis

How to cite this paper: Oberholzer, M. (2014). Are efficient CEOs higher remunerated? A data envelopment analysis of selected Johannesburg security exchange companies. Corporate Ownership & Control, 12(1), 92-104. https://doi.org/10.22495/cocv12i1p6