Executive Remuneration and Its Relationship to Firm Performance: Mining Sector Evidence from Largest FTSE Registered Companies

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Acknowledgement

I would like to thank my research supervisor, family and friends for supporting me and guiding me through out the research process and helping in successfully accomplishing the research objectives.

Declaration

I, hereby declare that the matter provided in the this dissertation/thesis is my own unaided work. Furthermore, it represents my own beliefs and perceptions that I have been able to develop by conducting thorough research on the matter.

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Abstract

This paper is intended to understand the relationship that exists between executive remuneration and company's performance. It is believed that incentive misalignment is one of the major factors that have resulted in global financial crisis of 2007/2008. The top management is not influenced or motivated to perform in an efficient manner as a result of high salaries; however, there are also other factors that create an impact on the performance of these executives. Top executives are encouraged to perform better as their performance is driven by high profits hence; they have begun to perform in their own interest resulting in separation of control and ownership in modern companies. Top executives have been working for their own interest and therefore, this has resulted in creating a significant impact on the firm's performance. Thus, it is essential to monitor the compensation rules and regulations for top executives to ensure that the corporation performance is maximized. Furthermore, since executive remuneration is a part of corporate governance it is imperative to ascertain that company has been able to develop appropriate policies to make certain that company works to maximize shareholders' interests. The researcher has analyzed the performance of certain companies operating in the mineral industry using various performance indicators as dependent variable and other variables such as executive remuneration as independent variable to ascertain the relationship that exist between executive remuneration and firm's performance. The research findings highlighted that there is a significant impact of executive remuneration on the performance of firms. Firm performance was used measured using ROA, ROE, Share Price and Dividend Yield. The results indicated that it is essential to determine an optimal level of executive remuneration to maximize the performance of a firm. Executive remuneration, firm size, working capital, operating cashflows and firm leverage were used as independent variables and their impact was analysed on the firm's performance that was measured using different dependent variable. Thus, by conducting thorough research on the matter under and study and using regression analysis the research results indicated a strong relationship between executive remuneration and firms' performance.

List of Abbreviations

AGM: Annual General Meeting

CEO: Chief Operating Officer

ENRC: Eurasian Natural Resources Corporation

EPS: Earnings Per Share

EXREM: Executive Remuneration

FTSE: Financial Times Stock Exchange

LSE: London Stock Exchange

OCF: Operating Cashflows

ROA: Return on Assets

ROE: Return on Equity

SP: Share Price

WC: Working Capital

ACKNOWLEDGEMENTI

ABSTRACTIII

LIST OF ABBREVIATIONSV

VI

CHAPTER 1: INTRODUCTION1

1.1 Background of the Research1

1.2 Purpose of the Study2

1.3 Aims and Objectives of the research2

1.4 Research Questions4

CHAPTER 2: LITERATURE REVIEW6

CHAPTER 2: LITERATURE ...