Study On Executives’ External Emolument Gap To Company’ Performance

Professional managers is a product of the separation of ownership and management in the modern enterprise system; with the economic development, professional managers are also become a prominent role increasingly, their talents and behavior has an important impact for enterprises. And how to use the caliber of professional managers effectively to coordinate the principal-agent relationship, is also become one of the subjects of scholars’research. Among of all, salary incentive agreed by the most scholars is the balance of the principal-agent relationship and it will have impact on the performance of the company.In the design of executive compensation incentives, Compensation design rationality and fairness have gradually been noticed in recent years. Fairness is an important principle of executive compensation design. Currently executive compensation fairness is mainly reflected in the reasonableness of executive pay gap between the executives and employees within the enterprise (internal fairness), as well as the different companies in the same industry (external fairness). According the Equity theory, when a person has achieved results and obtain the corresponding reward, he is not only concerned about the absolute amount of their compensation, but also concerned about the relative amounts of their own compensation, that is, by comparison with others to perceive remuneration is reasonable. After comparing, pay gap will affect their enthusiasm in the organization, which will impact business performance. Enterprises typically achieve the fairness pay by controlling internal and external executive pay disparity gap to achieve the effect of salary incentive.From the implementation of mandatory disclosure of every incumbent directors, supervisors and senior management remuneration system from our listed companies since2005,and Official purposes of the Commission’s "Information Disclosure of Listed Companies" in2007, the disclosure of the remuneration of executives of listed companies will be more perfect, it also provides some basis for this article. In this context, the paper started with the executive compensation fairness perspective to explore whether the gap between executive external pay have an impact on company performance and how it impact an the performance of companies. And try to provide further improvement on our executive compensation incentives and make companies focusing more on executive compensation design and management, through this, make the companies setting executive compensation evels to enhance the performance. Specifically, the paper starting from the point ot view oi corporate governance aim mt view of executive pay fairness theory, use combination by theoretic analysis and empirical research to study the impact of the gap between executives’payment on the company’s performance following the steps:Firstly, the article describes the background and research questions, and related research literatures combs and induction to clarify the purpose of this study, research ideas and research methods. Then reviewed and elaborated from the point of view from agent theory, equity theory, behavioral theory and tournament theory. And draw on a theoretical analysis based on the theoretical, such as a detailed analysis on the impact of the negative and positive gap of executive compensation and the equity nature on the company’s performance. And proposed three hypothesis combined with China’s actual conditions.After that, the article has the descriptive statistical analysis, correlation analysis, regression analysis and stability test with the use of A-share listed companies relevant data of motherboard between2010--2012.And consider the sample companies of external executive pay equity gap between positive and negative in different nature and the equity nature, Group empirical research the effects of executive pay gap outside on the company’s performance.Through empirical study we draw the following conclusions:The correlated between executive pay’s external negative gap and the performance of state-owned and non-state-owned listed companies has not existed significantly. It showed that the executive’s unfair perception caused by negative external gap of executive is lack of incentives or disciplinary action of the company’s performance. The positive external gap only has a significant positive impact on the results of non-state-owned listed companies however has no significant effect on the results of state-owned listed companies. It illustrated the salaries of executives of non-state-owned companies is related, but the salaries of executives of state-owned companies is still under control and the executives focus more on their political future, so the salaries of executives of state-owned companies fell to reflect its market value adequately. Therefore the effect of incentive pay is less than non-state-owned listed companies.Finally, the article combined the research conclusion and the situation oflisted company’s executive emolument, proposed policies and recommendations to improve the executive compensation system and the disclosure system for China; and pointed out the inadequacies of this article and future research prospects.