The theoretical construct known as Agency Theory was initially developed by Jensen and Meckling (1976) to address conflicts arising when one party (the principal) delegates decision-making authority to another (the agent). Agency Theory suggests that these conflicts occur because agents may pursue personal interests rather than acting solely in the principal’s best interest, leading to agency problems (Jensen & Meckling, 1976). In corporate settings, the principal represents the shareholders, while the agent refers to the executives entrusted with managing the company (Bussin, 2016). However, as executives do not bear direct ownership risks, their goals may not always align with those of shareholders, potentially leading to decisions prioritising executive benefits over long-term company performance (Attaway, 2000; Bosse & Phillips, 2016; O’Reilly & Main, 2010).

To mitigate conflicts between executive and shareholder interests, corporate governance mechanisms such as performance-linked executive compensation, incentive structures and regulatory oversight are implemented to ensure alignment between executive actions and organisational objectives (Bussin, 2016; Deysel & Kruger, 2015; Luo, 2015). In South Africa, regulatory frameworks such as the Companies Act (Act No. 71 of 2008) and the King IV Report on Corporate Governance (2016) explicitly mandate that executive remuneration must be linked to company performance, emphasising ethical leadership and stakeholder inclusivity (Republic of South Africa, 2008; Institute of Directors Southern Africa, 2016). These frameworks promote transparency, accountability and fairness in remuneration practices, reinforcing that pay should reflect value creation and sustainable organisational success. Beyond aligning shareholder and executive interests, employee perceptions of executive compensation transparency are equally critical. Employees interpret pay structures through the lenses of fairness, equity and corporate accountability factors that profoundly affect their motivation and engagement (Lilien, 2022; Nazir et al., 2019). Specifically, transparent communication about executive pay fosters perceptions of fairness by allowing employees to understand how remuneration relates to organisational performance and their own compensation. This transparency enhances trust in leadership, boosts morale and cultivates a sense of equity within the workplace. As a result, employees are more likely to be motivated, exhibit higher engagement and contribute discretionary effort, all of which are essential for organisational effectiveness and retention.

In large organisations, agency conflicts extend beyond shareholders and executives to include a third key stakeholder: employees. The shareholders own the company, the board of directors oversees governance, and executives manage daily operations (Jensen & Meckling, 1976). However, when executives exploit control, such as inflating salaries, awarding excessive bonuses or maintaining opaque compensation structures, employees may perceive these practices as unfair, leading to trust erosion and reduced engagement (Kim et al., 2020). Transparency in executive compensation plays a critical role in addressing these concerns. Organisations can foster trust, fairness and alignment between executives and employees by openly communicating pay structures, performance metrics and governance mechanisms. Transparency ensures that employees understand how executive pay is determined, reducing perceptions of inequity and reinforcing engagement (Bushman et al., 2017). Conversely, a lack of transparency can result in scepticism, reduced employee morale and disengagement, particularly in South Africa’s SOEs, where public scrutiny and governance failures have heightened concerns over executive compensation practices (Faulkender et al., 2020). Integrating the Agency Theory in the current study provides a theoretical foundation for examining how transparency in executive compensation influences employee motivation and engagement within a South African SOE. While traditional agency discussions focus on shareholder–executive conflicts, this study extends the theory by investigating how compensation communication affects employees as internal stakeholders. By bridging corporate governance with employee perceptions, this study fills a critical research gap in understanding the role of transparency in fostering organisational trust, motivation and, ultimately, company success.

The widening gap between executive and employee pay has intensified concerns regarding fairness, equity and social justice within organisations, often exacerbating feelings of income inequality and workplace dissatisfaction (Clarke et al., 2019; Haynes et al., 2015; Mueller et al., 2017). While executive remuneration is primarily structured to attract and retain high-calibre leadership, the way it is communicated, particularly the transparency and perceived fairness of pay practices, has important implications for how employees perceive organisational justice and trust in leadership (Magnan & Martin, 2019). Although extensive research has examined executive pay from governance and shareholder perspectives, there remains limited focus on how employees interpret these compensation practices and how such perceptions affect their motivation, engagement and commitment to the organisation. This study focuses explicitly on exploring employees’ perceptions of transparency and fairness in executive compensation within a South African SOE, aiming to understand how these perceptions influence their motivation and organisational engagement. Rather than assuming a causal or mediational relationship, the study adopts an exploratory qualitative approach to capture employees’ lived experiences and subjective meanings related to executive pay communication.

Transparency in executive compensation is a key determinant of employee trust and motivation. When compensation structures are communicated, employees are more likely to perceive them as fair, fostering a sense of alignment with organisational goals (Javed et al., 2020; Kral & Kubiová, 2021; Robinson, 2020). Conversely, opaque pay structures can lead to scepticism, disengagement and reduced job satisfaction (Erdoan, 2019; Nazir et al., 2019; Suttipun, 2021). Research highlights that remuneration fairness affects employee morale and contributes to overall workplace harmony (Bamberger, 2021; Men, 2021; Norman et al., 2021). From an Agency Theory perspective (Jensen & Meckling, 1976), transparency in executive pay mitigates principal–agent conflicts by aligning managerial incentives with shareholder and employee expectations. In South Africa, regulatory frameworks such as the Companies Act (No. 71 of 2008) and the King IV Report on Corporate Governance (2016) emphasise that executive compensation should be performance-based and publicly disclosed (Arries, 2014; Price Waterhouse Coopers, 2012). However, while these regulations aim to align shareholder and executive interests, they often overlook employee perceptions of fairness. Employees assess executive pay based on its link to company performance, internal pay equity and perceived justification of rewards (Edmans et al., 2021).

Employees evaluate executive compensation based on several critical factors influencing their perceptions of fairness and equity. Performance-based rewards are a key consideration, as employees expect executive pay to be merit-driven and linked to organisational success (Agbenyegah, 2019). Responsibility alignment also plays a role, with employees believing that executive compensation should reflect the level of strategic decision-making authority and accountability leaders hold (Gupta et al., 2022). Additionally, value creation is essential, as employees are more likely to perceive executive pay as fair when it aligns with executives’ tangible contributions to the organisation (Martin et al., 2020). Transparency and communication in remuneration policies help foster trust and reduce perceptions of unfairness, reinforcing employee confidence in the organisation’s compensation structure (Robinson, 2020). Furthermore, internal equity is crucial, as significant disparities between executive and employee pay can lead to dissatisfaction and disengagement (Kwon & Jang, 2022). Employees also assess executive compensation through market benchmarking, comparing it with industry standards to determine if it is justified relative to competitors (Edmans et al., 2021). Regular performance reviews and feedback loops that involve employee input further enhance perceptions of fairness and accountability (Sinambela et al., 2022). Lastly, diversity and inclusivity in compensation structures are significant, as equitable pay practices across gender and demographic groups contribute to a more just and inclusive work environment (Chakraborty & Ganguly, 2019). By addressing these factors, organisations can design executive remuneration systems that foster employee trust, motivation and long-term commitment.

A well-structured and transparent executive compensation system can enhance employee engagement and commitment by fostering a sense of fairness and alignment with corporate goals (Agarwal et al., 2023; Bongalonta & Bongalonta, 2022; Einwiller et al., 2021). Performance-based bonuses and stock options can serve as motivational tools, but if poorly designed, they may encourage short-termism or unethical behaviour (Fatemi & Fooladi, 2020; Schoenmaker, 2020). A balance between short-term incentives and long-term organisational objectives is essential for sustainable engagement (Eckerd et al., 2021). While executive compensation plays a role in employee motivation, it is only one component of a broader engagement strategy. Meaningful work, supportive leadership and career development opportunities are equally critical in fostering a productive and committed workforce (Agbenyegah, 2019; Kaur & Mehta, 2023; Melaku, 2022). Organisations integrating fair executive remuneration with comprehensive employee engagement strategies are likelier to cultivate a positive workplace culture and improve overall performance (Govender & Bussin, 2020). Executive remuneration is a powerful tool that attracts and retains top leadership and shapes employee perceptions of fairness and trust. Transparency, performance alignment and internal equity are key determinants of employees’ evaluation of executive pay. By addressing these factors and incorporating employee feedback, organisations can design remuneration systems that foster motivation, trust and engagement, ultimately driving long-term organisational success.

The study is grounded in an interpretivist qualitative research approach, which aims to understand the subjective meanings and social realities constructed by individuals within specific organisational contexts (Denzin & Lincoln, 2011; Saunders et al., 2009). This approach is particularly appropriate for exploring how employees perceive and interpret the transparency of executive compensation, how these perceptions shape their motivation and work engagement, and what organisational factors shape these perceptions. These research questions concern understanding lived experiences and sense-making processes rather than establishing statistical relationships or testing hypotheses. An interpretivist lens acknowledges that reality is socially constructed and context-dependent. Thus, the research focuses on capturing employees’ perceptions, cognitive interpretations of fairness and meaning-making processes rather than making generalisable or causal claims. The study does not aim to identify statistical relationships but instead seeks to understand diverse experiences and organisational dynamics from an emic (insider) perspective (Wahyuni, 2012). This approach is aligned with the study’s exploratory nature, supporting the inductive identification of themes emerging from the data.

This study adopted a qualitative, interpretivist approach to explore employees’ perceptions and experiences within SOEs regarding executive compensation and its perceived impact on organisational performance. Interpretivism is grounded in the belief that reality is socially constructed and best understood through the meanings individuals assign to their experiences (Denzin & Lincoln, 2011). This approach aligns with the study’s objective of understanding how employees interpret and make sense of executive compensation practices, enabling the researcher to generate rich, context-specific insights into how these perceptions influence motivation, engagement and organisational outcomes within the SOE context.

This study was conducted in a South African state-owned Gauteng enterprise with 5500 employees. Consideration was maintained that the King IV codes require companies listed on the Johannesburg Stock Exchange (JSE) and SOEs to disclose remuneration policies and reports, including executive and director remuneration. Only permanent employees were included in this study.

A target population refers to the entire set of individuals relevant to the research, while a sample is a selected subset representing key characteristics of that population (Shukla, 2020). The target population comprised executives and employees from a selected SOE in Gauteng. Convenience sampling was utilised to align with the study’s objectives and practical constraints, thereby minimising the financial and logistical demands associated with extensive data collection. The sample consisted of 16 participants: 10 executives, two unionised employees, and three Human Resourcing (HR) specialists. Executives were included to provide critical insights into compensation policies and their organisational impact, ensuring a well-rounded understanding. Their perspectives enrich the analysis of how executive compensation is perceived and its influence on organisational dynamics. Inclusion criteria for participants required them to be current employees of the selected SOE with at least 2 years of tenure to ensure sufficient organisational knowledge. Executives had to be directly involved in compensation or strategic decision-making. Unionised employees and HR specialists were included to present diverse views across organisational levels and functions. Table 1 lists the participants’ demographics.

A data collection instrument is used to gather research data (Saunders et al., 2016). This study employed semi-structured interviews, which provided a structured framework while allowing for exploratory discussions. This approach was effective in addressing the research questions and uncovering additional insights. The interviews were online using the MS Teams platform because the method was convenient for the participants. Semi-structured interviews were ideal for examining employees’ perceptions of executive compensation in an SOE, offering flexibility, depth and context. Interviews were scheduled based on participant availability, lasted between 45 min and 1 h, and were recorded for later transcription.

Data recording included taking notes and recording the interviews. The recording and transcription feature of Microsoft Teams were used to capture and document interviews. For accuracy, interviews were transcribed, corrected and stored on a secure, password-protected computer.

Data analysis is a technique that typically involves multiple activities, such as gathering, cleaning and organising the data (Saunders et al., 2016). Thematic analysis was used to analyse the data in this study. This method was selected for its flexibility in identifying, analysing and reporting patterns across qualitative data. The approach enabled the researcher to explore how employees perceive executive compensation transparency and how these perceptions relate to motivation and engagement within a SOE. Following Braun and Clarke’s (2006) six-phase framework, the data were systematically coded and categorised to develop meaningful themes that captured both shared and divergent perspectives. This analytical strategy aligns with the study’s interpretivist orientation and exploratory aim of understanding context-specific employee perceptions without relying on prescriptive analytical procedures. Data were analysed electronically using ATLAS.ti. Thematic analysis is a type of qualitative analysis used to analyse classifications and present themes (patterns) that relate to the data. It details the data and deals with diverse subjects via interpretations (Boyatzis, 2018). Braun and Clarke (2023) proposed the six-phase thematic analysis methods for data analysis. Familiarisation involves converting audio or handwritten data into written text, carefully reviewing it and creating preliminary labels to categorise important elements. Generating initial codes requires systematically labelling interesting patterns within the data and grouping all related information under each label. In the searching for themes phase, recurring ideas are identified, and relevant data are collected under each emerging theme. Reviewing themes ensures that they align with the coded extracts and the overall dataset, leading to the development of a thematic map. Defining and naming themes involves refining each theme’s specifics and assigning clear, descriptive names. Finally, producing the report entails selecting appropriate excerpts, discussing findings, linking them to the research question or literature, and compiling a comprehensive report. ATLAS.ti version 23 software was used to analyse data and classifying codes and themes into clusters based on their significance and relationship to the study.

Qualitative researchers must ensure data analysis is precise, consistent and transparent to establish credibility (Cooper & Schindler, 2016). Various quality standards enhance qualitative research reliability. Credibility refers to the trustworthiness of the study’s findings (Polit & Beck, 2017). To enhance credibility, interviews were recorded and transcribed verbatim. Transferability allows readers to assess how findings apply to their contexts (Polit & Beck, 2017). This study referenced similar research on SOE executive compensation to support its conclusions. Dependability ensures data consistency over time and across study conditions (Polit & Beck, 2017). To achieve this, all participants answered a standardised set of questions, and their responses were recorded and transcribed, with field notes securely stored for audit purposes. Conformability reflects the reproducibility of findings (Leedy & Ormrod, 2010). Dependability minimised researcher bias, acknowledged methodological limitations and assessed potential impacts. An audit trail, including diagrams, was maintained to document the research process systematically. These measures collectively enhance the study’s trustworthiness and ensure its findings are both rigorous and reliable.

Ethical clearance to conduct this study was obtained from the University of Johannesburg Department of Industrial Psychology and People Management Research Ethics Committee (No. IPPM-2023-823[M]). Informed consent was obtained by providing participants with detailed information about the study’s nature, objectives and voluntary participation. Confidentiality was assured to protect their identities. Avoiding harm was prioritised by framing questions to prevent physical or psychological distress (Lacobucci & Churchill, 2018). Participants freely shared their experiences without influence, maintaining academic integrity. Confidentiality and anonymity were upheld by assigning pseudonyms (e.g. Participant 1) and securing data with password protection to be stored for 5 years before deletion (Malhotra, 2019). Permission to conduct the study was obtained from the selected SOE, and ethical clearance was granted by the University of Johannesburg (Kumar, 2018). These measures ensured adherence to ethical standards, safeguarding participants’ rights while maintaining research integrity.

Findings from the thematic analysis are presented in Figure 1. The first theme, Transparency and Communication, explores how executive compensation is communicated within the SOE and whether the process is transparent. The second theme, Executive Compensation and Employee Motivation, examines whether executive compensation influences employee motivation and enhances performance. Lastly, the third theme, Perceived Fairness and Equity in Pay, understands employees’ perceptions of fairness in executive compensation and its alignment with equity principles in the SOE.

As discussed in this section, the study suggests several practical steps for improving executive compensation practices, focusing on transparency, fairness, and their impact on employee motivation and engagement. Organisations should ensure clear and open communication about executive compensation policies, including the criteria and processes for determining pay. This increased transparency can build trust, reduce misunderstandings and mitigate negative perceptions of unfairness. Providing accessible information about compensation structures will also foster a sense of inclusion and accountability within the organisation. Concerning fairness and equity in compensation, efforts should be made to address significant disparities in compensation between executives and ordinary employees to avoid demotivation and disengagement. Implementing more equitable bonus and incentive structures aligned with individual contributions and performance can help balance perceptions of fairness and improve employee morale. Allowing employees to participate in the compensation decision-making process, as suggested by Sinambela et al. (2022), can also enhance perceptions of equity. Furthermore, in terms of employee motivation and engagement, executive compensation should reflect the organisation’s broader values and goals, ensuring that executives are rewarded for financial performance and their contributions to the organisation’s mission and culture. Aligning compensation structures with these values can enhance employee commitment and engagement, promoting a healthier and more motivated workforce. By adopting these practices, SOEs can foster a more equitable and transparent compensation system that boosts employee satisfaction and overall organisational cohesion.

This study acknowledges several limitations that must be considered when interpreting the findings. Firstly, the research was conducted within a single SOE in Gauteng, and as such, the insights derived are context-specific. While they provide valuable depth and understanding, these findings may not be generalisable to other SOEs, private sector organisations or institutional contexts. The distinct governance structures, cultural dynamics and sociopolitical mandates characterising individual SOEs necessitate caution when extending these results to other settings. Secondly, the study employed a qualitative research design, relying primarily on semi-structured interviews. While this approach facilitated rich, in-depth exploration of employees’ perceptions and experiences, it also inherently limits the breadth of perspectives captured. The findings represent the views of a purposively selected sample and may not reflect the full diversity of opinions within the organisation or among employees in other SOEs. Future research could benefit from triangulating qualitative insights with quantitative data to enhance the robustness and generalisability of the results.