Breaking the chains of corporate compensation: Unraveling the complexities of non-executive director compensation in South Africa’s boardrooms

This study investigates the impact of excluding stock options for non-executive directors (NEDs) on the relationship between executive pay and firm performance. The research focuses on accounting measures and market performance. Using a sample of 220 non-financial firms, including 110 listed firms from the Johannesburg Stock Exchange (JSE) as the treatment group and 110 firms from alternative stock markets as the control group, the study employs the Difference-In-Difference (DID) regression analysis. The findings show that excluding stock options for NEDs leads to a significant increase in the value of executive performance compensation. However, this relationship lacks statistical significance for market-based performance. The study also reveals a significant positive influence of executive ownership on executive compensation. The results suggest the importance of alternative compensation structures and aligning executive interests with shareholder interests. The study recommends encouraging the exclusion of stock options for NEDs, exploring alternative compensation structures tied to accounting-based measures, conducting further research on market-based performance metrics, implementing executive ownership programs, and continuously monitoring and evaluating executive compensation practices. The findings validate their recommendations, which may be helpful for future decisions in that area. The results are also valuable for shareholders, as they vote on remuneration policies, including the different forms of incentives relating to NEDs.