Research On The Relationship Between Executive Compensation Incentive And Companies’ Performance In Public Companies

Issue of executive incentive compensation has been a hot spot for a long time. It isa very significant project for our public companies because an effective executiveremuneration schemes plays a core role for them both in perfecting the corporategovern and promoting these companies. Based on available researches onrelationships between executive incentive compensation mechanism and performanceof companies, this thesis would focus on the relationships from the Ultimate Propertyperspective, including executive monetary compensation, executive share and theon-the-job consumption three aspects. According to the ultimate control rights, publiccompanies in our country can be classified into three categories: non-state ones, thecentral government control ones (the central SOEs) as well as the local governmentcontrol ones (the local SOEs). Furthermore, the latter two are collectively called thestate-owned public companies. On one hand, since the differences among companieson the property right character, companies’ governance mechanisms and companies’operating objects as well as strength of supervision on executives, the relationshipsbetween executive incentive compensation mechanism and performance of companiesare distinct among the three kinds of companies talked above, which indicates that thesame kind executive incentive compensation mechanism plays varied roles indifferent category public companies. On the other hand, this thesis divides theexecutive compensation into executive monetary compensation, proportion ofexecutive shareholding and on-the-job consumption of executives. Then it paysattention to their respective relationship with the companies’ performance to perfectthe thesis core subject. This is relatively creative.According to1163companies’ data collected from2009to2011, as many as3489samples, this thesis verifies the distinct relationships between executive incentive compensation and performance of companies among those three sorts ofpublic companies by regression analysis method. Based on this study, we find thatwhile the executive monetary compensation and the proportion of shareholding have apositive influence on the companies’ performance, the on-the-job consumption playeda negative role. However, the correlation they have with the companies’ performanceshows different degrees in those three distinct kinds’ public companies, for instance,there is more positive influence of executive monetary compensation and theshareholding proportion on the companies’ performance in non-state owned publiccompanies than that in state owned ones; also it is more positive in the central SOEsthan in the local SOEs. Since the proportion of shareholding is strictly limited by thestate owned public companies, executives in the SOEs have a relatively lowproportion and it is not quite different between in the central SOEs and in the localones. In addition, there is no apparently different influence of the proportion oncompanies’ performance of these two kinds’ corporate.As for the influence ofon-the-job consumption on companies’ performance, it plays the most negative role inthe non-state owned companies, followed by in the local SOEs. This shows us thatdifferent kinds of public companies have varied levels on property right foundation,corporate management mechanism and operating goal, which leads to distinct degreesof incentive for executives in different companies. Therefore, these public companies,firstly, should make further effort to perfect their incentive mechanism, to improveexecutive monetary compensation and proportion of shareholding gradually and tolimit on-the-job consumption on a new level as well as to build a multi level andmultifaceted incentive mechanism. Secondly, they need to improve the market ofprofessional managers, abolish executive delegate system in public SOEs and selectexecutives from the market of professional manager.Thirdly, abolish the salarycontrol system instead by compensation monetary scheme, and implement shareincentive mechanism to improve shareholding proportion of executives in publicSOEs. Lastly, for those non-state owned public companies, they should perfectoperation and management system, and complete incentive and restriction system aswell as strengthen supervision on executives to reduce their on-the-job consumption.