China Listed Company Executive Compensation Incentive And Performance Relation Study

As for the research background of this essay,top management incentive is one of the key problems among modem firm theories. In the principal-agent theories'point of view,it is one of the components of contracts among them. And performance incentive is the core problem among those issues. It becomes necessary to provide policy adjustment direction and target through describing China enterprise'incentive situation precisely and discovering potential problems of performance incentives, and it also provides a theoretical basis both for institutional adjustment and micro-economy incentive scheme design. It will be significant for the national owned enterprise reform, the normative operation of non-national owned companies,capital markets developments as well as institutional adjustments. That's why this paper focuses on the research of top management performance incentives.Generally speaking, the forms of firm organization may affect performance incentives. But as for Chinese enterprise, list companies are the most formal ones with the characteristic of same information specifications and are regulated by the same law,so they can provide us with more comparable information. Thus we chose list companies as our samples. In order to reveal the characteristics of performance incentives, we mainly focus our study on pay-performance relationship on China's listed firms.On the basis of previous research and theories. this paper presumes and examines the relationship between share hold's structure and compensation of CEOs in China's listed firms. Afterwards, it estimates the pay-performance elasticity of top management.It turns out that there is closer correlation between pay level and short-term financial performance than long-term financial performance; and there is some correlation dependence between pay level and market performances. but the shareholder return doesn't become the main attribute of the performances appraisal. The efficient is bigger using EPS as performance appraisal among ROE, ROS, and RETURN. Firm scale, company performances, Tradable ratio, foreign capital all can explain top management compensation well and they may have same explanation over compensation. This paper also utilizes the data of China companies to calculate the elasticity of top management compensation, which is comparable with Jensen and Murphy(1990), thus it provides certain foundation for the international comparison of Performance incentive and further study of structural change. This paper find out when the financial performances grow 10000 RMB, CEO salary will grow 2.02. CEO salary only increase 1.96 in firms with a State agency as the major shareholder comparing with the developed countries, this pay-performance elasticity is relatively lower.Moreover we also discover that, our manager market is not well developed, the compensation largely depends on industrial characteristics and region characteristics, and management skill has the characteristic of property specialty as human capital.