An Empirical Study On The Correlation Of Executive Compensation Gap And Corporate Performance In Listed Companies

In order to solve agency problem produced by two rights separating, Shareholders signed executive compensation contracts with managers. Compensation and incentive problems of executives is the concerns of theoretical and practical communities. This paper focuses on the issues of executive compensation of listed companies in China. As the in-deppth study on executive compensation, many interesting phenomena are discoverd. For example ,when vice president is promoted to general manager, the compensation will double. It is difficult for the traditional economic theories to explain this phenomenon. In order to expain this phenomenon,western scholars introduce tournament theory and behavior theory to the study on the issues of executive compensation gap. Tournament theory suggests that the greater the compensation gap, the fiercer competition within the executives'team, this competition can improve corporate performance. Behavior theory suggests that if the competition gap is too large, it may lead to fierce competition, which will inhibit the cooperation within the companies ,it is detrimental to improve corporate performance.Tournament theory suggests that executives don't use their power to benefit themselves in the process of signing executives'compensation and incentive contracts. The introduction of managerial power theory into the study on the issues of executive compensation gap enriches the theory of compensation gap issues. China is a socialist country, the income distribution system is inclined to egalitarianism, and since ancient times China emphasizes that harmony is the most precious .But with the development of economy, people intensely pursue material interest, which theory is suitble in China needs to be verified.Combining with institutional background in our country, this study forces on three issues as follow.First, whether the correlation of executive compensation gap and corporate performance exists in listed companies,if this correlation exists, it is positive or negative.Second, wether there is a significant correlation between quadratic of executive compensation gap and corporate performance, whether there is an optimal range of executive compensation gap to maximize corporate performance.These two issues simply emphasize the correlation of executive compensation gap and corporate performance, which is lack of theoretical persuasion.So the third issue of this article will study on how managers'power affects the correlation of executive compensation gap and corporate performance. To solve these three issues, this paper takes A-share listed company in 2009 cross-section data as the study sample to test the above issues. The results show that the correlation of executive compemsation gap and corporate performance is significantly positive, which supports tournament theory, the greater executive compemsation gap the better corporate performance; the correlation of quadratic executive compemsation gap and corporate performance is unsignificantly positive, there is no optimal executive compemsation gap range to maximize corporate performance.Generally, managers'power plays a negative regulatory role on the incentive effects of executive compemsation gap, Z Index and srucutre of board play a negative regulatory role, the result is significant, executives'tenure is unsignificant.