Chinese Banks’ Executive Compensations And Their Performances

With Chinese reform and opening-up pushing on, foreign banks fully integratedinto our financial market. In market competition, because foreign banks have thereasonable property right structure, perfect organization structure, strong innovationcapability, advanced technology, especially a set of most effective scientific salarysystem which inspires its executives and employees and is almost immune fromChina’s policy restrictions, but the remuneration incentives system of China’s bankingsector is far from perfect, which caused many senior executives of domestic banksrun to foreign banks. At the same time, the banks have the principal-agent problem likegeneral corporate, namely the interests between shareholders of the bank andexecutives conflict because of information asymmetry. From these two aspects, in orderto attract high-level management personnel to create more value for the bank, China isin urgent need of improving the banking salary management system. Perfect executivecompensation management system not only can attract the senior managementpersonnel, but also can promote the interests of executives and shareholders toconsistency. So to improve the salary management system of China’s banking sector hasastrong theoretical andpractical significance.Based on the above background, this paper on the premise of referring to therelevant literature and understanding the development of compensation incentivemechanism of Chinese bank executive, through the collection of relevant data of14listed banks executives’ salary and performance, drawing on the trend of changes ofChinese bank executive compensation, then through the use of Eviews5.0to make anempirical analysis on relationship between executive compensation and performance.The analysis found that: although China has set up the executive compensationincentive system, but it is dominated by short-term incentive, exiting the followingproblems: lack of long-term incentive mechanism and short of executive salaryinformation; although the bank executive’s compensation in China and the profitabilityindicators of bank performance is in the presence of positive correlation, but thecorrelation is very weak, which shows that although Chinese listed banks havegradually established the bank executive pay performance incentives mechanism, but itneeds to be strengthened; although bank executive compensation system linked to profit indicators of operating performance, but it did not fully take the most importantindex: safety of banks into account, which makes Chinese banks’ executivesincrease the bank operation risk in pursuit of short-term performance to increase theircompensation in bank management activity, which also explains and confirms thephenomenon that executives salary and the non-performing loan rate are very high in2007.Therefore, in this paper, aiming at solving the problems existing in Chineseexecutive compensation system, banks should take the following suggestions andcountermeasures to reform and improve Chinese banking executive compensationincentive system: highlight the appraisal on safety performance indicators; combinedwith long term and short term incentives; put efforts to strengthen regulatory authoritiesexternal supervision; improveinternal governance mechanism continuously.