Influence Of Management Power On Executive Compensation Incentive

Executive compensation has always been a controversial topic with wide concern.Especially after the subprime crisis triggered the global financial tsunami, the highcompensation which is easily up to ten million dollars of the Wall Street executives offinancial institutions has caused extensive concern of social public, and thecoexistence of sky-high compensation and zero compensation of China’s listedcompany has also been suffered in the teeth of the storm. The reports that theexecutives use their power to influence compensation appear in newspapersfrequently, but the researches about the problem in China are not fully. The papermakes a deep and systematic study on China’s executive compensation mechanismfrom the perspective of management power, and hopes to provide theory referenceand practical experience for the reform of executive compensation incentivemechanism and the formulation of policy to restrict management power in the future.Based on the theory of management power, this paper analyzes the defects ofoptimal compensation under the effect of management power, the influence ofmanagement power on management incentive mechanism and the effects, and furtherresearches the influence of management power on management incentive mechanismand the effects under different owner structure. This study shows that the managementpower will increase executive compensation, and influence executive compensationperformance sensitivity. Under the influence of management power, compensationperformance sensitivity appears obvious non symmetry, namely, the compensation hashigher sensitivity with profit results but has lower sensitivity with loss performance.The management power will inhibit the effectiveness of executive compensationmechanism, namely, management power weakens the effect of executive incentivemechanism in improving the value of enterprises. We also find the nature ofstate-owned enterprises not only hinders the positive value effect of executivecompensation, but also strengthen the inhibiting effect of managem ent power on thepositive value effect of executive compensation.In view of the above conclusions, this paper gives some policy suggestions. Wehold that we can adopt measures from four aspects to enhance the effectiveness ofexecutive compensation incentive mechanism, strengthening disclosure of managerinformation, improving the corporate management incentive evaluation methods, improving the internal corporate governance mechanism and strengthening managermarket construction.