Are efficient CEO's higher remunerated? A data envelopment analysis of selected Johannesburg security exchange companies.

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.