Study On The State-owned Enterprises Executive Power’s Influence On Executive Compensation Under Media Attention

Executive compensation has always been an issue with wide concern. Especially since the global financial crisis erupted, the high annual salary easily up to ten million dollars of Wall Street financial institutions’top executives and the "surprise bonus" behavior have been suffered in the teeth of the storm. However, in China state-owned enterprises, the coexisted "sky-high salary" and "zero pay" scene makes one wonder, who decided the state-owned enterprises’ executive pay?There are two main theories on executive compensation incentives:the optimal contract theory and the management power theory. The optimal contract theory is known that executives’ compensation can reduce the agency cost, so that executive compensation and corporate performance will have significant positive correlation under three premises; but the reality is that they are poorly related, and many studies show that the relationship between them does not meet the expected optimal contract theory. Management power theory provides a reasonable explanation for this paradox. The management power theory is known that executives have a great influence on their own compensation. Many studies have shown that, executives will use their power to influence compensation.Combined with the reality of our country, we think that the institutional background in China provides a realistic basis to form executive power. The process of government power decentralization is actually the process of executive power development. The "predominant of one" and "insider control" and other defects of internal corporate governance mechanisms provides enough space for Chinese state-owned enterprises use their power to influence executive compensation contract behavior.However, executives use power for personal gain is not without limits. Because when the executive compensation is too high, the outrage cost will be coming, executives are likely to be replaced or demotion. Especially as officials or businessmen, the executives of state-owned enterprises care about not only the economic interests, but also their political future, thus the outrage cost will have certain constraints on their compensation. According to Bebchuk et al, transparent compensation mechanism may become a choice of governance the effect of power in the executive compensation. Media reports can alleviate the asymmetric information, urging the public to know more about the status of compensation. When the executive compensation is too high, more transparent salary condition may make the executives lead to more outrage costs, which have an impact on executive compensation.Based on the above analysis, the main purpose of this paper is to study the relationship between the state-owned listing corporation executive power, executive compensation and the media attention, and focuses on two issues:does the state executive power have any influence on executive compensation? What change does media attention to this effect?In order to answer those questions, we first define the concept; secondly, review the principal-agent theory, the optimal contract theory, managerial power theory, to lay a solid theoretical foundation for this research; then, analyze the system background; then, combined with the system background of our country, based on previous theories and literature review, put forward the research hypothesis; finally, draws the conclusion as follows:First of all, the state-owned enterprise executive power and executive compensation levels are obviously related; secondly, the sensitivity between executive compensation and accounting performance is high, but the sensitivity between executive compensation and market performance is low; moreover, the media attention has a certain role in the regulation of the power effect of executive compensation, and it has positive impact on executive compensation.The empirical results have important implications for the reform of the executive compensation incentive in China’s state-owned enterprises. Based on theoretical analysis and empirical results, we put forward the following three suggestions:First, China’s state-owned enterprises need better executive incentive contracts. Make the executive compensation is more depended on their performance, not their power. At the same time, the executive compensation should be related to not only the accounting performance, but also the market performance of state-owned enterprises.Second, the internal management level of enterprises should be improved. On the one hand, enhance the independence of the board of directors; on the other hand, the independence and effectiveness of the compensation committee and the board of supervisors also needs to be improved.Third, the external supervision mechanism still needs to be improved. First of all, the government will need to relax the regulation of the media, so that the governance role of media would become more effective. Secondly, establish a more transparent executive incentive mechanism, so that it is convenient to supervise the executive compensation for internal and external forces. Finally, establish better outside governance mechanism, such as micro-blog and other new media, market intermediaries, to better supervise the executive compensation.The innovation of this paper is mainly reflected in the following two aspects:First, this paper introduces media attention as the regulation variables of the relationship between executive power and compensation. Based on systematic review, we found the media attention have some certain effect on executive compensation. Not only enrich the research on governance the power effects in executive compensation, but also makes the study of media governance further.Second, we find that there are some limitations in the media governance role. The media attention has more influence on executive monetary compensation, but the relationship between executive power and their on-the-job consumption had not been significantly weakened by media attention. The media tend to play a governance role on those easy to observe phenomena, so it has limitations.