The Impact Of Executive Compensation Incentives On The Operating Performance Of Insurance Companies

After the entry policy on foreign insurance companies was relaxed,the replacement and flow of talents in the domestic insurance market have become more frequent.In a period of economic transformation,the insurance industry must take management team building as a top priority to release and stimulate the industry’s sustainable development and innovation,and to explore new products,new channels,and new models.At the same time,the regularized,prudential and rigorous monitoring of the solvency of various companies by the regulatory authorities has made insurance companies to pursue innovation in business activities while evaluating the risk control and profitability of the company’s development.This is also why the high paying salary on core decision-making executives is so common in the industry.In response to the issue of talent retention,in addition to increasing the fixed salary of executives,insurance institutions usually bind the KPI performance evaluation system to the contributions of the company’s executives,incentivizing them to make their best efforts to obtain the greatest benefits.Therefore,studying the impact of domestic insurance company executive compensation incentives on the company’s operating performance is a topic that arises in response to the situation.In order to better complete the research goals,this article first reviews the research methods and research results of domestic and foreign scholars on executive compensation incentives,corporate performance,and risk-taking levels.The principal-agent theory is the main theoretical support.In the specific research,it is reflected in the design of rewards and punishments for executives with measurable performance,and measurable performance indicators are selected to study the impact of executive compensation incentives.In the process of empirical research,we use financial data and business statistical data released by insurance authorities such as the"Annual Information Disclosure Report","Solvency Report",and "Insurance Yearbook" of insurance companies,and select companies that disclose the remuneration of key management personnel as the research sample.54 property insurance and personal insurance companies were selected.Fixed effects,ordered logit and other regression models were being used,instrumental variable method,adjusted variables,etc.were adopted for robustness analysis,and three relationships were focused on:(1)The relationship and the influence between executive compensation incentives and the risk control capabilities of insurance companies and;(2)The relationship and the influence between executive compensation incentives and the profitability of insurance companies;(3)The relationship and the influence between executive compensation incentives and the innovation and development capabilities of insurance companies.The following are the main conclusions:First,executive compensation incentives will reduce the company’s risk control capabilities.Considering that the China Banking and Insurance Regulatory Commission uses the "comprehensive solvency adequacy ratio" indicator to monitor the risk control capability of insurance companies,this article directly quotes this indicator to examine the relationship between executive compensation incentives and the company’s solvency adequacy ratio.Through regression analysis of benchmark model and instrumental variable model,it is concluded that executive compensation have a significant 1%negative impact at comprehensive solvency adequacy ratio.Further robustness test proves that the basic regression results are credible.This conclusion verifies the "scale and efficiency" dispute in the company’s operations,or the "development and risk control" dispute.Whereas the executives are motivated to make aggressive decisions under the company’s incentive policy,as a result of the rapid expansion of the business,the company’s risk control capabilities has also been weakened.Second,executive compensation incentives will promote the company’s profitability.Referring to the literature research method,this article uses the universal index return on assets(ROA)to represent the company’s profitability.The empirical results show that executive compensation incentives and return on assets have a significant positive impact at the statistical level of 1%,and the results of basic regression and instrumental variable regression are basically the same.After further testing the robustness of the model,it is found that business scale and premium income as interaction factors have a significant inhibitory effect on the increase in return on assets triggered by executive incentives.This conclusion is consistent with actual business activities.Super large-scale companies have full-time professional teams and independent asset management companies are responsible for insurance fund investment management.This indicator is generally no longer evaluated in the senior management of insurance companies;on the other hand,from the scale of insurance funds It can be seen that the larger the capital,the less flexibility in the allocation of investment,and ensuring the safety of capital is the primary goal,so applying incentives to this performance indicator has little effect.Third,executive compensation incentives will promote innovation and uplift the scale of businesses.Innovation is the main driving force for the sustainable development of insurance companies.In recent years,with the slow development of traditional insurance,the suspension of sales of investment products,and the return of insurance to its protective nature,internet insurance has become the most representative and large-scale innovation in the insurance industry.In the case of limited data,this study chooses internet insurance to represent the innovation and development capabilities of insurance companies,and examines the company’s innovation capabilities on the scale of internet premiums.The empirical results show that executive compensation incentives and the company’s internet premium income have a significant positive impact at the 10%statistical level.After further testing the robustness of the model,it is found that executive compensation incentives have a positive effect on internet premium income.The conclusions of the study indicate that insurance companies should design assessment indicators for innovative businesses in absolute increments,shorten the incubation period of innovative businesses through executive incentives,and consider the assessment of the contribution of insurance types or channels after the scale is formed as soon as possible.This conclusion helps insurance companies consider how to maintain innovation results and increase innovation capacity from the perspective of performance appraisal.This article’s research on domestic insurance company executive compensation incentives has further enriched the research content of principal-agent theory and incentive theory.By measuring the risk control,profitability,and innovation development capabilities of insurance companies with measurable indicators,the relationship between these indicators and executive compensation incentives was established,and the regression analysis method was used to test insurance company executive compensation incentives and these performances.The relationship between indicators makes incentives policy making more and more accurate.Finally,the topic of the impact of executive compensation incentives on the operating performance of insurance companies studied in this paper provides theoretical support for insurance companies to design more scientifically and rationally for executive compensation systems and performance evaluation indicators,as well as for insurance industry regulatory authorities to formulate corresponding policies.