Research On Influencing Factors Of Executives’ Abnormal Compensation

Establishing an effective mechanism of executive incentives is the foundation of effective corporate governance and the premise of company steady development. But the imperfection of the existing corporate governance mechanisms makes executive compensation incentives to be a prominent issue. In recent years, the frequent outbreaks of "astronomical compensation","compensation upside down" phenomenon make the effectives’abnormal compensation of listed companies at home and abroad to become one of the hot spots of society. These visions caused widespread concern of academics, practitioners and great attention of government departments. In the2008’ financial tsunami, it causes the people’s anger, which is that many executives in the case of the decline, even huge losses of the company performance are still enjoying high compensation. The main reason of public outrage is that these executives enjoy huge compensation without risks.In the case of executives’ abnormal compensation phenomenon intensified, in order to maintain the social order and appease the public discontent, the Chinese government began to strengthen the work of executive compensation laws and regulations from2008and promulgated a series of papers. One of the most influential papers is "compensation limit order" in September2009issued by the six central ministries in State Council’s consent, it clearly establishes that the highest pre-tax annual salary of executives in state-owned enterprises dosen’t exceed2.8million. Many state-owned enterprises had taken action with the introduction of "compensation limit order", most of enterprise executive compensation’s decline reached20%, some more than50%, General Motors’ year compensation declined as high as500%, even the case, for example,"zero pay","one dollar pay" and so on. On the surface, the introduction of "compensation limit order" curbs the phenomenon of the "astronomical compensation" in certain extent, but what is the truth? In this context, in order to explore the current situation and the deep level reasons of effectives’ abnormal compensation in China’s listed companies, the article will study the influencing factors of effectives’ abnormal compensation.First, the PurposeExisting research of executive compensation mainly concentrates in these areas, for example, executive compensation incentive and restraint mechanisms, executive compensation viscosity, the relationship between compensation and performance, the pay gap and so on. As a new direction, the studies of effectives’ abnormal compensation are rare. Foreign scholars have not yet researed this problem, in the domestic, only the Wang Qinggang et al (2011) were analyzed this problem from two aspects of the company’s internal governance and management rights. This paper, which is based on relevant theory and research at home and abroad, through public disclosure of information, research09-11years of China’s listed companies, make executives’ abnormal compensation depth research from both normative and empirical sides. The paper will make a useful exploration and supplements for this field of study. Specifically, the purpose of this paper is as follows.(1)Reveals the status quo of executives’ abnormal compensation phenomenon. The paper makes multi-angle descriptive statistics for executive compensation and executives’ abnormal compensation, makes comparative analysis through intuitive data, reveals the status quo of executives’ abnormal compensation executives phenomenon to judge the severity of this phenomenon, and support the necessity and significance of this study from the data.(2)Analysis the deep-seated reasons of executives’ abnormal compensation phenomenon. This paper argues that the deep-seated reasons of executives’ abnormal compensation phenomenon is:when an enterprise is in the start-up and growth of the life cycle period, the improvement of the corporate governance mechanism is not synchronized because of the rapid pace of development, causing some governance issues, executives’ abnormal compensation phenomenon is one of them. By analyzing the studies, they have a certain significance to find the perfect balance point for the development of the company and the corporate governance mechanism, improve and depth corporate governance structure and remuneration management theory, develop a reasonable remuneration system.Second, the Content In order to research the influencing factors of executives’ abnormal compensation phenomenon, the paper analyzes the background and phenomena, reveals the severity of executives’abnormal compensation phenomenon, makes asymmetric information, incomplete contract theory, contingency theory and theory of management power as wires, analysis the deep-seated reasons of executives’abnormal compensation phenomenon is that the imperfections of the corporate governance mechanism, then analysis the specific factors of executives’ abnormal compensation from the specific aspects of the corporate governance mechanism, on this basis, puts forward the assumption of this article, and through examines the different effects of internal supervision system, ownership structure, management powers and characteristics of specific indicators for executives’ abnormal compensation, and finally summarizes and puts forward recommendations.Based on the above research ideas, the paper is divided into seven chapters, each chapter reads as follows:Chapter1Introduction:First it describes the research background and research purposes. Executives’abnormal compensation issues has become an urgent problem of corporate governance issues,"astronomical compensation","compensation upside down" often appear. In order to dissect the reasons leading to this phenomenon, the paper carried out the study. Then it describes the research methods of the article, the basic framework, research ideas and the expected contribution and limitations.Chapter2Literature Review:This chapter defines company executives, executive compensation and executives’abnormal compensation based on the purpose of the study, and selects the appropriate metric. Secondly, it reviews the research achievements of scholars at home and abroad, for example, the relationship between executive compensation with company performance, company size, shareholding structure, managers powers, executive stock ownership, board governance and industry factors and so on, laise the foundation for the continuation of the later chapters.Chapter3Analysis:In order to reveal the status quo of executive compensation and executives’ abnormal compensation, our executive compensation and abnormal executives pay, explanation the need for this study, this chapter carries out analysis on the status quo of executive compensation and executives’abnormal compensation of listed companies in China, initially reveales the seriousness of the phenomenon of executives’abnormal compensation.Chapter4Theoretical Analysis:As the theoretical basis, including asymmetric information, incomplete contract theory, contingency theory and theory of management power to wires, it leads to the root of executives’abnormal compensation is that China’s listed companies mechanism is not perfect, And expand the corporate governance mechanism from the internal supervision system, ownership structure, management rights and characteristics of the company, analysis the specific aspects of executives’abnormal compensation, and provides a theoretical support for the below assumptions.Chapter5Research Design:Firstly, it screens09-11three-year sample of Lu Shen stock listed companies in China and electes the effective sample size of3102. Secondly, it puts forward the assumption of this article from the internal supervision system of corporate governance, ownership structure, management powers and characteristics of the company. Finally, because explanatory variables is an ordinal response variable, coupled with the explanatory variables are multiple, it establishes the the multi-ologit model of executives’abnormal compensation, and then defines variables, and selects number of metrics to measure the explanatory variables.Chapter6Empirical Analysis:Firstly, it makes a preliminary understanding of the dependent variable, the explanatory variables and control variables, and descriptive statistics. Secondly, in order to the availability of selected variables, it makes Pearson correlation coefficient test of all variables to determine correlation and multi-collinearity of the dependent variable, the explanatory variables and control variables. Then, in order to test the assumptions set, all valid samples uses Stata statistics software to have the multi-Ologit regression of the influencing factors of executives’abnormal compensation phenomenon, and analysis the results. Finally, in order to test the robustness of empirical results of the article’s multiple regression, it alternatives explanatory variables by other indicators. The results are same, the empirical results are robust.Chapter7Conclusions and Policy Recommendations:It makes a summary for the results of this study, puts forward a series of improvement recommendations for executives’abnormal compensation based on the above chapters, and it analysis the limitations of the paper, and prospects for further study.Third, the Expected ContributionThe contribution of the paper is expected to have the following aspects:(1)When studing influencing factors of executives’ abnormal compensation, the paper makes a systematic study from the point of view of the corporate governance mechanism. Corporate governance mechanism is including internal supervision system, the shareholding structure of the Company, the powers of management and company characteristics. This not only has a systematic study of corporate governance mechanism on executives’abnormal compensation, riches the literature on the influencing factors of executives’abnormal compensation phenomenon, and also helps to strengthen shareholders in corporate governance mechanism, optimizes the pay incentives.(2)For the classification of executives’ abnormal compensation, the paper divides into three categories of positive anomalies group, and negative anomalies group and normal group on the basis of previous studies. Existing research on the classification of executives’ abnormal compensation practices are borrowed from Lin Wan Ying (2009), divided into two categories of normal and abnormal group, it is too general. This paper, on the basis of this definition, is broking down to the normal group, the executives’ abnormal compensation is divided into three categories, the classification is more details, and it is conducive to the accuracy of the results.(3)In terms of research methods, past papers used the Probit model to research executives’ abnormal compensation, the paper uses the Ologit model based on the needs of the explanatory variables, the empirical analysis enriches the study methods of executives’ abnormal compensation.