Internal Control, Management Authority And Executive Pay

Executive compensation is the focus of the society in recent years. The research of this theme is increasing, especially after the issue of the internal control system. Prior research shows that Chinese listing corporation executive compensation is generally tied to performance. But there also have the phenomenon of weak connection between executive compensation and performance; the phenomenon of asymmetry between executive compensation and different part of performance, for example, the relevancethan the executive compensation and declining performance.Some scholars even found that the executive compensation had on connection with performance, manifesting as “sky high salary” and “zero salary”. These phenomena can’t be explained by the theory of optimal contract. This paper tried to explain these abnormal compensation from the perspective of managerial power, taking China’s Shanghai and Shenzhen A Shares the main board of listing corporation from 2010 to 2012 as samples, which studied the relationship between managerial power and executive compensation. From the point of managerial power theory, executives have the ability to bargain. They can canvass the board of directors so as to built a win compensation treaty for themselves. By this means, executives capture more benefit. This paper made an empirical test on the relationship of managerial power and executive compensation. We found that managerial power can improve the level of executive compensation. With the development of internal control system and the internal control quality, internal control plays an important part to regulate executives’ rent-seeking behavior on the executive compensation. In this case, whether internal control can weaken the influence of managerial power to executive compensation. This paper made an empirical test, we found that internal control does not weaken the relationship between managerial power and executive compensation. This may be related to the low enforcement of China’s listing corporation. Some internal control system is not being carried out.According to the problem reveled in this paper, we propose two pieces of suggestion. On one hand, China’s listing company executives are aimed to influence compensation through compensation contract using managerial power. On the other hand, Chinese Listing Corporation should pay attention to the execution effect of internal control, rather than on paper and company system.