Research On The Reference Points Effect Of Compensation Contract And Its Impact On Executive Behavior In China

Rooted in principal-agent theory,researches about executive compensation have always been carried out under analysis paradigms of optimal contracting approach.However,the models of executive compensation used by people deviate from the traditional ones in reality.In recent years,the executive compensation has raised dramatically,and there have been some uncommon phenomenon about executive compensation such as sky-high compensation,the inverted relationship between compensation and performance,zero compensation and so on.Due to these problems,governments all over the word have already issued regulations relating to executive compensation including China,but the effects of regulations are not satisfactory.Thus,non-optimal compensation is considered to be universal,persistent and systematic,the former analysis paradigms have been improved and developed under executive power theory and manager market theory.The former theory critically analyses the assumption that directors sign treaties impartially,and the latter basing on expanded competitive market hypothesis revises the principal-agent analysis paradigms of optimal contracting approach.However,there is no denying that there are still some shortcomings about the research of executive compensation.Contract reference point theory indicates that many previous researches have generally ignored the role of benchmark and its influences on executive psychological perception and performance during the progress of contract design of executive compensation.The importance of compensation reference point effect is drawing more and more attentions from all over the world,since the United States Securities and Exchange Commission(SEC)forced the listed companies to disclose the information of their peer groups in 2006.However,scholars have paid little attention to research about reference points effect of executive compensation contract,and there are few documents about these,so it is necessary for us to study reference points effect of executive compensation contract comprehensively and systematically,to better understand and address the current problem that executive compensation continues to grow.Considering the above background,this paper does comprehensive and systematical researches about the reference points effect of executive compensation in China based on executive power theory,manager market theory and contract reference point Theory,The main contents include the existence of the reference points effect of executive compensation contract,constructing the theoretical model of reference points effect of executive compensation contract,mining intrinsic mechanism,and exploring its impact on executive behavior.The conclusions of this paper include:The first result shows that the reference points could be divided into the external reference point,the internal reference point(including internal reference points of board of directors and senior management team)and individual reference point,each point has its own measurement and identification method,executive compensation contract exists reference points effect.The second result shows that reference points effect of executive compensation contract not only support the manager market theory,but also support the manager power theory.The trend on the whole is more inclined to the manager market theory,however,there are differences in the tendency of each reference points effect,in which the internal reference point of board of directors supports manager power theory and the other points tend to support manager market theory.And according the study of the impacts on executive behavior,we find that there are negative relationships among contract reference points,perks and resignation,executive compensation incentives play negative roles in perks and resignation,executive compensation incentives play a moderate role between contract reference points and perks,executive compensation incentives also play a moderate role between contract reference points and resignation,executive compensation incentives restrain the growth of perks and decline the executive's separation rate.The further research find that the higher the degree of manager marketing is,the stronger the moderate effect of compensation incentives implemented by firms this year is.It indicates that executive compensation incentives have incentive effects on executive performance.Based on the above conclusions,there are some suggestions,as follows:(1)identifying scientifically and recognizing the reference points of executive compensation contract;(2)paying attention to the supervision of the use of reference points contract;(3)strengthening the supervision of information disclosure and executive compensation;(4)paying close attention to dynamic change of executives' psychology,and taking the measures of compensation incentive timely and effectively;(5)taking different measures to reform the manager market according to different property rights of enterprises.These researches are based on the practical problem of the growth of executive compensation,and there are innovations about the theoretical basis,research contents,theoretical models and the research perspectives.As far as the theoretical significance is concerned,the conclusions are helpful to strengthen the understanding of the reference points effect of executive compensation contract,to deepen the theoretical study about the reference points effect of executive compensation contract,to develop the related researches on manager market,to understand the impact of compensation contract reference point on executive behavior.As far as the practical significance is concerned,the conclusions are beneficial to the reasonable use and effective supervision of the contract reference points,to highlight the importance and urgency of the manager market construction,to provide references to the market-oriented reformation of executive compensation system,to improve the design and evaluation of executive compensation contracts under different situations.