A Survey of Performance-based Compensation Schemes in Companies Listed at the Nairobi Stock Exchange

Abstract

According to the agency theory, and owner of a business must make a trade-off between monitoring cost and forms of compensation that will cause the agent to always act in their interest,. Due to the difficulties associated with monitoring ; time, money and effort,management compensation became the most obvious means of aligning the interest of both parties to maximize the value for the owner. In order to validate this statement, the study was geared towards identifying the extent of use of performance-based compensation schemes in listed companies in Kenya. The attributes of different companies using the schemes were also obtained. Lastly, factors considered in choosing different schemes were considered. A total of 44 companies who responded to questionnaires were involved in the study. Salary took up the highest slot almost all of the companies that responded.This means that most companies negotiated with their staff at the entry level over salaries. This, they believed would both comensulate with their performance as well as safeguard them from most of agency conflicts. The conclusion of the study was that the extent of use of performance-based compensation scheme is tilted towards salaries. This is from observation arrived at which showed the use of salaries was the most occurring within most sectors. For the few companies that use reluctant to apply performance-based schemes on their own, In most of the companies that responded, any bonuses were given to all staff irrespective of the work performed or level in the organization.