An Empirical Research On Managerial Power, Executive Compensation And Company Performance

Compensation contract is the important corporate governance mechanism to solve traditional agency problem. However, in recent years, newspapers report executives designing their contract by themselves frequently. How do executives do this? Foreign scholars concerns the problem earlier, their study showed some degree of management can affect compensation contract. Compensation contract does not solve the agency problem, but it became part of the agency problem, thus a new school of remuneration-theory of management power was proposed. Management power is affected by many factors, such as property rights, legal environment, society and culture. This paper studies whether power management theory applies to our country, then this article assumes property rights system in addition to the other factors do not change much, of different property rights system, the management authority if there is a significant difference to the impact of compensation. Further, we study the influence of the powers of the management incentive compensation and company performance’s correlation.In January7,2002, China Securities Regulatory Commission promulgated the "listing Corporation" code of corporate governance. Incentive mechanism was established to linked to executive compensation and company performance. Executive can control the performance of the company through the earnings management behavior. Previous studies showed that executive with managerial power could design compensation contract by himself, but the executive without managerial power need to cater to the board examination for earnings management, so the management power affects the relationship between compensation incentive and corporate performance. Large power executive can rely on the power to gain more power gains, so he’s not care about the monetary compensation. Managerial smaller power is different, their power limited income, they need to satisfy the currency the salary and performance appraisal standards, at the same time they control performance established organization status, in order to obtain higher on-the-job consumption. Based on the above analysis, this paper distinguishes the performance of the company, will be divided into accounting performance (ROA) and the real performance (excluding manipulate earnings after the accounting performance, TROA), research the management power on the compensation (salary, job consumption) on the performance of the company correlation effect, to understand the transmission mechanism the compensation incentive.The part of the literature review the compensation incentive and the performance of the company, and the relationship between managerial power theory literature. This part expounds the theory of agency theory and the management power theory, discussing the practical management of the power problems in China, and puts forward the research hypothesis:hypothesis1:the greater the managerial power, management of monetary compensation and on-the-job consumption is higher. Hypothesis2:non-state owned listing Corporation than state-owned listing Corporation, the management of power influence on on-the-job consumption degree is higher, but had no significant effect on the monetary compensation. Hypothesis3A:management layer power company can customize the monetary compensation, they only need to improve the control performance through on-the-job consumption. Hypothesis3B:the management of non managerial power companies need to improve performance by earnings management, improved performance to get monetary compensation and the consumption.I collected2008-2012A shares of listing Corporation a total of2931samples, including on-the-job consumption data by manual statistical "other cash related to operating activities flow" may the details of the project include on-the-job consumption data obtained, other data from the CSMAR database. Through the test of the descriptive statistics and the differences were found:management of power enterprise executive pay and perks were significantly higher than that of non-management of power enterprise, this preliminary support hypothesis1; while in the sub sample descriptive statistics, found that the non state-owned listing Corporation management power is higher than the state-owned listing corporation management power, on the consumption of non the state-owned listing Corporation also were significantly more than the state-owned listing Corporation, this proved the hypothesis2. Most of the executives were operating earnings, and no significant difference, which is consistent with the theoretical premise of our management, which have the will and the ability to conduct earnings management behavior.According to the regression result, this paper gets the following conclusions: firstly, one with the higher managerial power, he does use their authority to grab the interests of the company, to enjoy the higher salary package. Secondly, executives of the non-state owned listing Corporation compared to state-owned listing Corporation, the power influence on monetary compensation and no difference, but the influence on consumption is greater. This is due to the smaller non state-owned listing corporation supervision management power received external supervision, monetary compensation is more, the management is more preference on the consumption. Thirdly, however the power is, executives have the motivation to control the performance to get more money. Managerial power requires low to cater to the board of directors to the company’s performance appraisal to get high salary, also set a higher authority to obtain the on-the-job consumption. Notably, there is no relation between incentive compensation and the real performance of the company, that our salary incentive did not play a good role.Through the above analysis I found, managerial power theory is applicable for our country, the management authority does raise the level of compensation incentive, and in different property right system reflects the different characteristics. We focus on the managerial power, is to focus on the management of power in China have a more serious agency problem, thus further study of influence of management authority to the relationship between compensation incentive and corporate performance in motivation research management behavior. The conclusions of this study on executive compensation incentive and the performance of the company reveals of the reasons for the inconsistent findings. Because of the existence of power management, executives will make different choices, so as to determine the difference of compensation incentive effects. This is how to design compensation contracts, provides a way to improve enterprise performance. To sum up, improve the performance appraisal index of listing Corporation in China, according to the power management setting more appropriate compensation, strengthen the disclosure of information, improve the quality of information disclosure, which is the problem to improve the level of corporate governance of China’s problems.The contribution of this paper lies in the following two points:the first is the existing literature is directly concern the relationship between compensation and firm performance, this paper will introduce the management power, discusses the management authority for the effect of incentive compensation; second is the further study of the management power affects the relationship between compensation incentive and corporate performance management to research motivation, confirmed the managerial power enterprise executives can pay themselves, but still need to control the performance of the company to upgrade consumption. The study proves that managerial power theory is applicable for our country, and enriches the research literature of salary incentive.Limitations of this study are mainly the following three points:firstly, the study sample accounted for only27.64%of all listing Corporation, which may affect the conclusion. Reason is that China’s current laws and regulations do not require listing Corporation to disclose on the consumption data, while listing Corporation disclosure of the annual report of the standard is not unified. Secondly, the empirical model in this paper has some limitations, which may affect the conclusions of the study. Thirdly, the managerial power theory is not deep enough, which makes the theoretical logic of this article is not strict, the managerial power the choice of variables to be considered and improved, may not be accurate definition of power enterprise management, affect the results.