Relationship Between Executive Compensation And Financial Performance Of Commercial State Owned Enterprises In The Energy Sector In Kenya

Abstract

Purpose - This paper focused on the relationship between executive compensation and financial perfomance of commercial state owned corporations in the energy sector in Kenya

Methodology - This study adopted a cross - sectional research design. Secondary data on net income, total assets and executive compensation were extrated from the individual company published financial statements for a five year period

Findings - The study finds weak negative relationship between executive compensation and financial performance. Regression analysis models infer that 38.9% and 45.2% of variations in financial performance of the commercial state owned firms is explained by variations in the firm size and by variations in both the firm size and the levels of executive compensation respectively. The study found that any unit increase in firm size has a commensurate decline in ROA for the firms to an extent of

0.059 and a unit increase in executive compensation has a commensurate decline in

ROA for the firms to an extent of 0.027.

Implication – the findings imply that there is no increased value for higher executive compensation in the public sector corporations. Thus, Corporations boards should re evaluate the comensation to justify value for the executive pay levels.

Value – It is recomended that there be harmonization and review of the executive renumeration  system  to  include  pay  for  performance  perks  and  to  rationalize productive capacity of assets acquired to ensure they are utlized in value creation