Assessing the relationship between CEO remuneration and organisational performance in a water board in South Africa

Abstract

The remuneration of CEOs has been a controversial subject, with some members of the public believing that CEO remuneration is excessive. This point is further exacerbated by the current socio economic conditions prevalent in South Africa as well as globally. In South Africa, water boards are charged with the provision of water services to municipalities or water services authorities. These water boards are critical to the delivery of water as a basic service. It is thus crucial that those charged with the leadership of such water boards are sufficiently remunerated and perform as expected in the provision of water as a basic service. This study sets out to assess the relationship between CEO remuneration and organisational performance, with the specific focus of a single water board. The water board was selected for the study due its size, as compared to other water boards. The study began with a literature study to gain an understanding of the relationship between CEO remuneration and organisational performance as well as to understand the determinants of CEO remuneration. Another part of the literature study focused on organisational performance management to gain an understanding of the history of organisational performance management. A thorough study of performance management was also performed, focusing on the balanced scorecard and KPIs. The final part of the literature study focused on the shareholder compact and its applicability to the water board as a public institution. A study was conducted, with the use of the interpretive content analysis approach. The information, which was the focus of the study, was obtained from the relevant water board’s website in the form of annual reports and then information relating to organisational performance and the CEO’s remuneration was extracted and summarised and then analysed. The organisational performance, for each financial year was summarised and a performance level for each year was calculated. Then the CEO’s remuneration was summarised, broken down into its various components for each year and then displayed on a line graph to display the movements year on year. Histograms were also used to depict both the performance levels of the water board and the remuneration components individually year on year. A line graph was then used to portray the relationship between the performance level of the water board and each component of the CEO’s remuneration for each of the 5 financial years selected, iv with a sixth year as the base. The line graph was also used to portray this relationship for the total remuneration package of the CEO as well as the performance level of the water board for each of the 5 years selected. The results from the study show no positive relationship between the performance level of the water board with the CEO’s basic salary and other cash benefits. The study did however show a positive relationship between the performance level of the water board and the performance incentive paid to the CEO. The findings were however inconclusive when it came to the relationship between the performance level of the water board with the CEO’s total remuneration package. Conclusions regarding the study were made and an evaluation was performed to ascertain whether the primary as well as secondary objectives of the study were met.