Executive compensation and corporate performance in Kenya: a survey of listed companies at the Nairobi Stock Exchange

Abstract

Corporations play an important role in the production of goods and services in a market economy such as Kenya's. The productivity of a corporation depends on the efforts of its managers. The management on the other hand is an agent and is under obligation to act in the best interest of the share holders in return for remuneration. Economic theory suggests that in the absence of constraints, the managers would act in their own best interest. There are three basic ways of ensuring corporate goal congruence: monitoring the activities of managers, tying their wealth closely to that of the shareholders through stock compensation, and incentive contracting. The first method is sometimes impeded by corporate information asymmetry and differences specialization between shareholders and managers. The objective of this research was to establish the extent to which incentive contracting is applied amongst listed companies at the Nairobi Stock exchange. The findings indicate that most listed companies use this method to a limited extent and predominantly with the chief executive.