Relationship between Board Remuneration and Financial Performance in the Kenyan Financial Services Industry

Board remuneration has attracted considerable interest amongst financial analysts and scholars as it is seen to be a deterrent to financial scandals that have rocked corporates in the 21st Century. This study sought to determine the effect of board remuneration on financial performance, focussing on commercial banks, insurance companies and investment companies listed at the Nairobi Securities Exchange from 2003 to 2013. Grounding the study on the agency theory, the study postulated that board remuneration will positively influence financial performance. Secondary data was obtained from audited financial statements for the 11 years ending 2013. Board remuneration was measured by director annual fees, while financial performance was measured using the proxies; return on assets (ROA), return on equity (ROE), dividend yield (DY), and earnings per share (EPS). A linear regression model was used on pooled cross-sectional time-series data to draw the inferences of the study. The results disclose significant variations in the level of board remuneration across the companies and a significant relationship between board remuneration and DY, but not ROA, ROE, and EPS. When disaggregated to financial market segments, the results confirmed a statistically significant relationship between board remuneration and with dividend yield in the banking sector. The same was not reported for ROA, ROE, and EPS. In the insurance segment, there was a statistical significance between board remuneration and ROA only, while in the investment sector, there was no significant relationship between board remuneration and financial performance measures.