Corporate Governance, Managerial Power And Executive Compensation

Executive compensation is a controversial topic in recent years, especially the tremendous compensation earned by some CEOs have attract the attention of industry and academia. This paper follows the route of "corporate governance, managerial power, and executive compensation". In this paper, I want to find out whether managerial power contributes to executive compensation and whether executive compensation becomes an agency problem. I hope this research will provide empirical evidences on judging executive compensation.This paper based on the background of the China’s listed Companies in Shenzhen and Shanghai and our samples over6years from2005to2010. We find that with the marketization reform, the executive compensation has grow rapidly in a rate of17.1%per year in those year, larger than GDP and citizens’net income growth rate. Companies’sales and performance have positive influence to executive compensation, and the compensation contract has certain validity.We find that executives can effect compensation or even determined their compensation with their power. The indicators which stand for the board of director, equity structure and industry characteristics are all significant. The more power executives owned, the high compensation they obtained. We also find that excess compensation has negative effect on companies’performance, which means that excess is not a kind of allowance but the result of their rent seeking activities.In conclusion, though the compensation contract has certain validity, the interpretable power is low about the rapidly raising compensation. The phenomenon that executives can affect or even directly determine their compensation is universally existed, and the compensation which aims to provide incentives to managers eventually becomes a part of agency problems. It is suggested that we should pay more attention to agency problem may caused by managerial power; improving incentive system; strengthen disclosure of information; improving corporate governance and so on.