Mr P Mashudu is an organisational researcher with research interest in organisational behaviour and management

remuneration. He has embarked on a study with the aim of examining the impact of the financial performance of JSE$-$listed

financial companies on CEO compensation during the $19952018$ period.

After reviewing the accounting and financial management literature, he noted that the sustainability of companies depends

on their being profitable. As such, profitability is the benchmark of financial performance of a company. Effective operational

activities, investment activities and financing activities are essential for financial performance. Therefore, business entities

seek to measure their profitability through their financial and nonfinancial performance, evaluating the increase or growth in

sales, market share, cost reduction, customer satisfaction, or through indicators such as return on capital employed

$($ROCE$),$ return on assets $($ROA$),$ return on sales $($ROS$),$ return on equity $($ROE$),$ gross profit margin, operating profit margin,

net profit margin, and other financial indicators $($Azim et al$.,2017$ Naknok, $2022).$

Mr Mashudu resolved to use operating profit margin as a proxy for organisational financial performance and the annual total

compensation of the CEO as a percentage of annual sales of firm $(\%)$ as the proxy of CEO compensation. To prevent

possible distortion of the findings, Mr Mashudu decided to use data before the COVID$-19$ pandemic$$ thus, the data of

interest are records of CEO compensation and information extracted from the financial statements of JSE$-$listed financial

companies for the $19952018$ period. Mr Mashudu obtained a total of $320$ sets of valid reference data. Table $4\mathrm{.}1$ is an

excerpt of the research data.Table $4\mathrm{.}1$: Excerpt of data on operating profit margin of JSE$-$listed financial firms and CEO compensation over the

$19952018$ period.

Firm Ref # Firm operating profit margin $(\%)$ CEO annual total compensation as a percentage of annual

sales of firm $(\%)$

RX$123417,781,01$

FT$542118,200,97$

PL$785313,111,21$

GH$086311,270,85$

WE$12469,141,11$

TF$27388,780,67$

UY$590813,130,73$

YB$119418,991,31$

SX$995520,001,43$

RC$266714,111,09$

$.........$

TG$521917,131,51$

Data Analysis

Mr Mashudu analysed the data using IBM SPSS Statistics version $27$ and the output in Figure $4\mathrm{.}1$ to Figure $4\mathrm{.}6$ was

generated from the analysis.

Figure $4\mathrm{.}1$: Descriptive Statistics

Firm operating profit margin $(\%)$

CEO total annual compensation as $\%$

of annual sales of firm $(\%)$

Mean $12\mathrm{.}0404$ Mean $0\mathrm{.}8795$

Standard Error $0\mathrm{.}1859$ Standard Error $0\mathrm{.}0115$

Median $12\mathrm{.}445$ Median $0\mathrm{.}9011$

Mode $14\mathrm{.}56$ Mode $0\mathrm{.}92$

Standard Deviation $3\mathrm{.}3262$ Standard Deviation $0\mathrm{.}2056$

Sample Variance $11\mathrm{.}0639$ Sample Variance $0\mathrm{.}0423$

Kurtosis $-0\mathrm{.}3734$ Kurtosis $0\mathrm{.}3738$

Skewness $-0\mathrm{.}1175$ Skewness $-0\mathrm{.}1610$

Range $18\mathrm{.}83$ Range $1\mathrm{.}27$

Minimum $3\mathrm{.}67$ Minimum $0\mathrm{.}25$

Maximum $22\mathrm{.}5$ Maximum $1\mathrm{.}52$

Sum $3852\mathrm{.}940$ Sum $281\mathrm{.}453$

Count, N $320$ Count, N $320$

Figure $4\mathrm{.}2$: Scatterplot

Figure $4\mathrm{.}3$: Correlations

CEO$\_$Compensation Operating$\_$profit$\_$margin

CEO$\_$Compensation Pearson

Correlation

$1\mathrm{.}720**$

Sig. $(2-$tailed$)\mathrm{.}000$

N $320320$

Operating$\_$profit$\_$margin Pearson

Correlation

$\mathrm{.}720**1$

Sig. $(2-$tailed$)\mathrm{.}000$

N $320320$

$**.$ Correlation is significant at the $0\mathrm{.}01$ level $(2-$tailed$).$

Figure $4\mathrm{.}4$: Model Summaryb

Model R R Square Adjusted R Square Std$.$ Error of the Estimate

$1\mathrm{.}720$a $\mathrm{.}519\mathrm{.}518\mathrm{.}1428$

a$.$ Predictors: $($Constant$),$ Operating$\_$profit$\_$margin

b$.$ Dependent Variable: CEO$\_$Compensation

Figure $4\mathrm{.}5$: ANOVAa

Model Sum of Squares df Mean Square F Sig.

$1$ Regression $6\mathrm{.}998916\mathrm{.}9989343\mathrm{.}1858\mathrm{.}000$b

Residual $6\mathrm{.}48527318\mathrm{.}0204$

Total $13\mathrm{.}4842319$

a$.$ Dependent Variable: CEO$\_$Compensation

b$.$ Predictors: $($Constant$),$ Operating$\_$profit$\_$margin

Figure $4\mathrm{.}6$: Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

B Std$.$ Error Beta t Sig.

$1($Constant$)\mathrm{.}3434\mathrm{.}03011\mathrm{.}4364\mathrm{.}000$

Operating$\_$profit$\_$margin $\mathrm{.}0445\mathrm{.}002\mathrm{.}72018\mathrm{.}5253\mathrm{.}000$

a$.$ Dependent Variable: CEO$\_$Compensation

Required:

Required:

$4\mathrm{.}1$ Formulate a suitable title of Mr Mashudu$$s study. $(3$ Marks$)$

$4\mathrm{.}2$ State the independent variable $($IV$)$ and dependent variable $($DV$)$ of Mr Mashudu$$s study and their levels

of measurement.

$(4$

Marks$)$

$4\mathrm{.}3$ Formulate the null and alternative hypotheses underpinning Mr Mashudu$$s study. $(2$ Marks$)$

$4\mathrm{.}4$ Interpret the output of the statistical analysis as depicted in Figure $4\mathrm{.}1$ to Figure $4\mathrm{.}6.(5$ Marks$)$

$4\mathrm{.}5$ State the regression equation for predicting CEO compensation on the basis of a firm$$s operating profit

margin. Explain the implications of the equation you have stated for the compensation of the CEOs of JSE$-$listed

financial sector companies.

$(3$

Marks$)$

$4\mathrm{.}6$ Using the regression equation in $4\mathrm{.}4,$ determine the total annual compensation of the CEO $($in Rands$)$ of a

JSE$-$listed financial company which generated an annual revenue of R$5\mathrm{.}2$ billion and an operating profit of R$1\mathrm{.}2$

billion in $2018.$

$(3$

Marks