Governmental Regulations Of Corporate Executive Compensation

The global financial crisis has spotlighted the issue of executive compensation, which triggers executive compensation regulations boom on a global scale. Governmental regulations have become effective tools to solve the problem of executives' excessive remuneration. Incomplete contract theory, rent-seeking theory, market failure theory and the Coase theorem prove the necessity and feasibility of governmental regulations. The effectiveness and limitations of executive compensation regulations system of each country show that the fundamental problem is to deal well with the relationship between fairness and efficiency. Therefore, executive compensation regulation system should seek the balance between satisfying the public requirements and improving governance efficiency of executive compensation. In China, the government should reasonably define the boundary and scope of regulations, take short-term measures of pay limit, and improve long-term supervisory and accountability mechanism, so as to compensate for market failure.