Of Shareholders, Compensation, and Dividends

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Friday, August 07, 2020 / 05:50 AM / By Proshare Research / Header Image Credit: EcoGraphics


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This section gives more context on the relationship between the CEO's remuneration and shareholder value creation. There have been various studies conducted to examine the possible relationship between the CEO's remuneration and shareholder value creation. Some studies have proven that there is a positive relationship between the CEO's remuneration and shareholder value created such as dividend paid, returns on equity, etc. Their arguments lie in the fact that there will be no motive for the CEO of a company to be highly remunerated if shareholders' value in the company did not improve.

 

There are new developments that have shaped the executive remuneration environment over the past decade. While these vary from region to region, they encompass such things as converging accounting practices, enhanced disclosure, and heightened attention on executive perquisites, benefits, and severance arrangements.


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The impact of these changes has been widespread. While trends have played out differently in different regions, some common themes have emerged:

  • Increased focus on variable remuneration.
  • The shift from stock options to full value shares
  • Greater use of performance-based equity.
  • Elimination of egregious perquisites and benefits.
  • Imposed limits on non-performance-based pay, including severance and change-in-control benefits, supplemental executive retirement, and deferred compensation.
  • Greater diversity in remuneration packages.

These developments are moving executive remuneration practices in the right direction. Around the globe, companies are taking a more comprehensive approach to executive remuneration design and making strides to improve the link between pay and performance.


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Illustration 7: Stakeholder Objectives of Performance Measurement

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Performance as Value Creation

There are numerous ways to measure performance. Stock price or earnings per share could be used to measure performance. Performance could also be examined against internal budgets or relative to peers. It can be measured over a single financial quarter, a year, a decade, or even the entire life of the business. Irrespective of the methods used, the objective is the same; to capture the amount of value that has been created.


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Illustration 8: Key Business Processes and the Metrics Used to Gauge Performance in Each Area

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Organizations generate multiple types of value which managements and shareholders stand to benefit immensely. To shareholders, value creation results from an increase in the enterprise value of the firm. For publicly traded companies, enterprise value is generated by increases in stock price, the payment of dividends or increases in asset value.

 

Illustration 9: Sample Value Chain Analysis

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Downloadable Versions of 2020 Report (PDF)

1.      Executive Summary: CEO Remuneration 2020 Report - Paying the CEO in a Pandemic; The Unanswered Questions  July 30, 2020

2.     Full Report: CEO Remuneration 2020 Report - Paying the CEO in a Pandemic; The Unanswered Questions  July 30, 2020 


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Previous Year's Report and Links

1.          CEO Remuneration 2019 Report: Making Sense of the Numbers for Listed Companies in Nigeria  July 30, 2019

2.         Full Report: CEO Remuneration 2019 Report - Making Sense of the Numbers for Listed Companies in Nigeria   July 30, 2019

3.     All Quoted Companies IR Pages - Proshare MARKETS


 

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 Related News from CEO Remuneration 2020 Report

  1. COVID-19 and The New Compensation Normal
  2. The Upside of Rationality
  3. Nigeria's Top Ten Income Earning Executives
  4. The Many Sides of CEO Compensation
  5. Executive Pay and Theoretical Approaches
  6. Between 2019 and 2020: Understanding The New Realities of CEO Remuneration
  7. CEO Remuneration 2020 Report - Paying the CEO in a Pandemic; The Unanswered Questions

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