Research On The Executive Compensation In Financial Industry

In recent years, a rapid growth appears in financial industryexecutive compensation, the gap between it and social averagecompensation has been widened significantly and becomes the focus inpublic. From the events of China Ping An “astronomical executivecompensation” in2008to a series of policies introduced to bind executivecompensation it has aroused considerable debate. Meanwhile, it alsoraised the thinking of questions on the level of compensation in theindustry: the health status of the compensation system, the equity andefficiency of distribution of income. The focus of this paper is to researchthe issues behind the financial sector, which are great significance toimprove corporate governance and create a good economic operatingenvironment.The domestic and foreign scholars mostly goes on from factorswhich affect executive compensation to find the reasons for such gap inthe industry. Thus, the relevant theoretical review of executivecompensation influencing factors is combined to find some main factors,such as business performance, firm size, corporate governance structure,characteristics of managers, industry characteristics, and governmentregulation. The results,without in-depth analysis of issues behind theexecutive compensation, Just shows the relationship between thesefactors and the executive compensation in the financial industry.This paper also selects the perspective of factors and analyze it deeply tocompensate the lack of empirical research. We use a comparativeapproach and choose the manufacturing industry as a reference tohighlight the financial industry executive compensation issues. Areasonable degree of manufacturing industry contribution to economicdevelopment and the level of executive compensation have laid thefoundation to our choice.First, we use the absolute difference indicators-group standarddeviation and relative difference indicators-coefficient of variation ofstandard deviation in the statistical methods to measure the gap ofexecutive compensation between the financial and manufacturingindustries. We find that executive compensation in the financial industryis much higher than the manufacturing industry, the absolute difference isbetween120million-135million, the relative difference is between70%-95%. Then after comparing with the manufacturing industry to analyzethe reason of the high compensation in the financial industry from theinfluencing factors perspective, we select sample of26financial industrylisted companies and695manufacturing industry listed companiesthrough the data filtering. We choose executive compensation as thedependent variable and eight main factors as independent variables on thebasis of theoretical analysis and the literature: business performance,company size, executive ownership situation, asset-liability ratio, the level of salary of the staff, on-the-job consumption, proportion ofindependent directors, as well as state-owned shares. We put the data offinancial and manufacturing industries into the regression equation andcorrect it, then we get the final regression equation. Though thecomparison with the result of financial and manufacturing industriesand one-by-one analysis the influence of different factors on the financialindustry, the causes and the possible consequences of executivecompensation to analyze the issues of the financial industry. The resultsshow that: The correlation with the level of executive compensation andcompany performance is unreasonable; Ignore the long-term incentive inthe executive compensation structure; Scale-oriented incentivecompensation is not conducive to enterprise development; Financeresults-oriented executive compensation system with high-riskcharacteristics; Inadequate disclosure of executive compensationinformation; Adverse of executive selection mechanism on executivecompensation. On this basis, the problem from three directions proposedin the paper for the financial industry executive compensation: Enhancethe market competition, improve the degree of monopoly; Improve thegovernance; Strengthen disclosure of information. This paper provide a reference for the specification of executive compensation in the financialindustry.