An Inquiry On Competitiveness, Performance Evaluation And Effectiveness Of Long-term Pay Incentive

The modern management salary incentive system aims to adjust managementcompensation to accord the objective function of management and the objective functionof enterprises, So as to achieve the purpose of eliminating the agency cost. After joiningthe WTO, In order to enhance the international competitiveness, Listed companies inChina have fellow the step of outstanding enterprises abroad to implement the salaryreform, But with the deepening of the reform, the rising speed of the management oflisted companies pay level has far exceeded the growth rate of corporate net profits,especially during the financial crisis, the performance of listed companies have fallensharply, but executive compensation of listed companies is showing contrarian upsituation, and during the financial crisis, Astronomical salaries is common things amongChinese listed companies.Is the Pay incentive system in China reasonable? Why executive compensation risenwhen corporate performance decline? Whether the compensation system is beingcontrolled by executive and they could raise their compensation at will? And will the highsalaries bring sustainable and high performance growth of enterprises?In order to solve these questions, we collected the samples of Chinese listedcompanies during the year of2007to2010, and designed the evaluation system ofenterprise competition for these companies. Then, we turn to the long-term effectivenessof Compensation Incentive, use empirical methods such as correlation and regression toanalyze the incentive compensation and long-term effectiveness, the competitiveness ofenterprises of Chinese listed companies. Study shows: After the pay system reform, thecontractual relationship between salary and corporate performance has been formed, payand accounting profits(ROA) correlation increases every year and exceeded its relevanceto the competitiveness of enterprises; increasing in management salary did not bringlong-term corporate value enhancement; manager’s self-interested behavior have weakenor offset the incentive pay.Based on the results, we propose the following policy recommendations:①The listed companies should slow the pace of pay reform, and don’t blindly copyforeign enterprises’ high-paying system.②We should establish a system that end corporate management’s self-servingbehavior from a system perspective; Board of Directors in the development of executive compensation assessment criteria to increase the concern of long-term corporateperformance indicators, such as the competitiveness of enterprises, enhance the businessoperations.③Strengthening corporate governance, increase the transparency of listed companies,using external oversight to put an end to the self-serving behavior of the management oflisted companies. Set up Pay Regulatory Commission for listed companies in Exchange;Set executive pay supervisory positions In the listed company internal, they could reportdirectly to the board of directors of listed companies; And make more small andmedium-sized investors participate in the executive compensation setting process, inorder to maximize the protection of small and medium-sized investors.