Camouflaged Compensation: Do South African Executives Increase Their Pay through Share Repurchases?

Increasingly, researchers in developed economies are associating the exponential growth in share repurchases with executives’ desire to increase company share price and thus the value of their own share-based compensation. As research on this topic in emerging economies is sparse, this paper investigates the relationship between share repurchases and executive share-based compensation in South Africa. Certain weaknesses in South African corporate governance relating to share repurchases exacerbate the risk of camouflaged rent extraction and unethical behaviour. Regression analyses were executed, using data on share repurchases and executive share-based compensation variables for listed South African companies for the period 2002–2017. Statistically significant positive relationships were identified between share repurchases and executive share-based compensation. The results support the proposition that South African executives may be repurchasing shares in a bid to increase the value of their share-based compensation (in line with the managerial power theory), rather than maximising long-term shareholder value. This paper emphasises the need for improved corporate governance relating to share repurchases in South Africa. Given the income inequality in South Africa, the findings also have social justice implications.