A survey of performance measures for executive compensation schemes in public listed companies in Kenya

Abstract

This is a survey seeking to establish the performance measures for executive compensation schemes in public listed companies in Kenya. The study covered a sample of thirty-nine companies listed in the Nairobi Stock Exchange under the Main Investment Market Segment (MIMS). A questionnaire was administered to all the companies in the sample. However only twenty-four companies responded giving a response rate of sixty two percent which was considered adequate for the study. Attributes of the companies that responded were obtained from the audited financial statements covering the period 1998 to 2002. There was no great distinction on the attributes of the companies that use various performance measures. From the survey it is evident that most firms use both financial and non financial measures of performance (balanced score card) in designing executive compensation schemes for senior management. These firms are both local and foreign owned. It is also evident that growth in earnings is the most common financial measure of performance while increase in market share is the most common non financial measure of performance. Most companies prefer using accounting based measures of performance because they are measurable and quantifiable as opposed to market based measures of performance. Therefore we can deduce that measures of performance are key to deciding the basis of compensation used for senior managers and companies in Kenya use these measures in designing executive compensation schemes. Measures of performance are therefore instrumental in alleviating the agency problem between shareholders and managers.