Empirical Research On The CEO Compensation And Pay-for-Luck Phenomenon

For a long time, the correlation between CEO compensation and corporate performance in China has been questioned. With the outbreak of the global economic crisis, people has begun to pay more attention to the abnormal remuneration of executives, the large income gap between executives and regular staffs, as well as the "rich abbot in poor temple" phenomenon, the negative emotions of dissatisfaction with the social injustice has upgraded. In order to avoid arousing outrage and injuring himself reputation, CEO has strong motivation to justify his compensation. In this thesis, "luck" means the influencing factors of corporate performance that caused from industry fluctuations which is outside the CEO’s control. Owing to the weaken of corporate governance and the inflation of managerial power, CEO uses his power to extract rents and obtain the pay-for-luck, which can not meet the expectations of the mainstream agency theory. Therefore, the optimal contract theory shouldn’t be used to explain the pay-for-luck. Due to the presence of the principal-agent relationship, CEO is really likely to use his power and take advantage of the pay-for-luck to influence his own compensation and justify his compensation.In essence, the problem of pay-for-luck is as a result of the defects of corporate governance. This article uses the data of the companies listed on the Shanghai and Shenzhen two places from 2007 to 2011 as samples. Firstly, divide the corporate performance into "luck" section and managerial skill section, and then estimate the correlation between CEO compensation and the "luck" section of corporate performance, as well as the significance of the coefficient. The result shows that the pay-for-luck phenomenon is pervasive in the state-owned listed companies in China. Secondly, test the constraint effect of corporate governance to the pay-for-luck phenomenon, while the results show that the effectiveness and efficiency hasn’t come up to our expectations. Finally, based on the findings and combined with the practical situation in China, the article put forward the relevant measures and suggestions to perfect the corporate governance, such as strengthen the independent director system, enhance the independence of the board of directors, improve the external governance mechanism and so on.