The Difference Of Compensation Performance Sensitivity Between Different Property Rights Of Companies

With the development of technology, the number, scale and production efficiencyof China’s company is increasing, the executive compensation also presents a risingtrend. However, the level of executive compensation of some companies are abnormal,for example, the good performance company’s executive pay is not extrude, instead,the loss of company executive is still getting rich high salary. Obviously, theexecutive compensation of some companies have deviated from the normal level ofthe industry, indicating that the incentive effect of executive compensation has notbeen effectively worked, the study of executive compensation is imminent.“Principal-agent” issue has been a problem which is not solved in modernenterprise systems. Practice has proved that when the executive compensation linkedwith corporate performance, not only can take into account the interests ofshareholders and managers, but also can effectively alleviate the “principal-agent”problem. Therefore, in order to achieve the improvement of business value andbusiness performance, the establish of a reasonable compensation performancesensitivity is imminent. However, it proves that property rights of companies willeffect the compensation performance sensitivity. For example, state-owned companiestake more of the policy burden in achieving corporate value and business performance,such as adding more jobs, take on more social responsibility and to maintain socialstability. So the compensation performance sensitivity of state-owned companies arenot high. However the non-state-owned companies tend to results oriented when theyset the executive compensation, they have the higher compensation performancesensitivity. Therefore, the companies of different property rights have differencesbetween compensation performance sensitivity.In the section of theoretical analysis, we study the difference of compensationperformance sensitivity between different companies in the perspective of governmentintervention. Firstly, this paper analyses the correlation between executivecompensation and corporate performance based on our particular institutional context.Secondly, this paper analyses the external factors that effect the executivecompensation and corporate performance in the perspective of governmentintervention and property, considering the effect of government intervention on the compensation performance sensitivity of different kinds of companies. At last, westudy the institutional incentives which cause different compensation performancesensitivity by the comparison between the overall sample and classified sample.In the section of empirical analysis, the paper uses the data of2009-2012of thelisted companies to study the difference of compensation performance sensitivitybetween different companies by the method of descriptive statistics, correlation tests,multiple linear regression and robustness testing. The result shows that: Firstly,executive compensation incentive is effective, executive compensation and corporateperformance are significantly related. Secondly, for the state-owned company, theeffect of government intervention on the compensation performance sensitivity isbigger than the effect on non-state-owned company. Thirdly, non-state-ownedcompany’s compensation performance sensitivity is higher than the state-ownedcompany, and this difference is determined by the government intervention. Thispaper makes further exploration on how to improve the efficiency of executivecompensation and how to form a good corporate governance environment, providingthe empirical data and theoretical basis on the design of the executive compensation.In the last part of this paper, we put forward several suggestions for the problemof executive compensation system: Firstly, the executive compensation should belinked with corporate performance. On the one hand, in the design of executivecompensation incentives, reducing the minimum wage in the proportion of totalexecutive compensation, increasing the proportion of compensation for performance.on the other hand, companies should increase the total annual compensation ofexecutives, or implement equity incentive. Secondly, establishing effective mentalincentives. On the one hand, establishing an effective evaluation mechanism on thereputation. On the other hand, focusing on executive career incentives, and establish afair and reasonable working environment. Thirdly, the government shouldappropriately intervene (especially state-owned enterprises) income distribution. Onthe one hand, the government should put appropriate interventions on the incomedistribution of different companies. On the other hand, the government shouldconsider the managers who have political background, setting up differentcompensation ratio and compensation ceiling.