Corporate Life Cycles、Relative Performance Evaluation And Executive Compensation

The separation of ownership and management in modern company’s system makes the principal-agent relationship become an important relationship in a company. Since the information asymmetry between the operator and owner, agency conflict is a direct product of the principal-agent relationship, and the specific performance is moral hazard and adverse selection. To address this conflict, selectingmeasures to motivate and supervision executives are the most important issue the company facing. The purpose of incentive is making executives work to maximize the company’s benefits, and the method used is paying the executives reasonable salaries to match the company’s performance. The Performance of company is not just the result of the efforts of senior executives, but also affected by the national policy, the market conditions and the situation of other competitors. In order to motivate the executives to work harder, the change in performance resulting from external factors should be removed in the compensation contracts, namely relative performance.The relative performance evaluation is a special incentive mechanism based on behavioral science theory, principal-agent theory and tournament theory. Behavioral science theory is based on the assumption of "Social Person", and it believes that the agent will produce a sense of competition based on the performance of peers, and then work harder.The stronger degree of other agents’ competition, the agents will work harder. Principal-agent theory explains the relative performance evaluation based on the hypothesis of "economic person” from an economic perspective, and the foreign scholars Holmstrom also took it into account when he made up with the relative performance evaluation theory.That is,it is necessary to eliminate the environmental impact of uncertainty when measuring company performance linked executive compensation. In the tournament theory,it sorts by the output of all same or similar agents, then gives appropriate remuneration based on the agent’s rank, so the agent will work hard in order to have a good ranking in the sort to get high returns. It shows that the competition awareness can play the role of impelling agent.In order to study the extent of the use of relative performance evaluation in compensation contracts by the listed companies in China, this paper chooses a total of 462 samples by screening the data of listed IT company in Chinese A-share market from 2011 to 2013. In other words, this paper will test whether the compensation contracts use the relative performance to eliminate the influence of external factors. On this basis, the 462 samples are divided into five stages, namely, start-up period, growth period, maturity period, phase-out period and declining period. The samples in start-up period, phase-out period and declining period are too small and have little research value. So in order to explore whether it has a regulatory role of the corporate life cycle to the extent of the use of relative performance evaluation in in compensation contracts by the listed companies in China, we select only 303 samples in growth period and maturity period which have greater research value. This aspect of research is the first time in the country, which is innovation of this paper.The empirical results of this paper suggest that the listed IT company supports the hypothesis of the relative performance evaluation when the corporate performance is indicated by accounting return. The results also shows that the corporate life cycle can adjust the extent of the use of relative performance evaluation, and the company in growth period can weaken the negative impact of the relative performance and the executive compensation. In addition, the executive compensation will be affected by the proportion of independent directors on the board, company size, the proportion of shares held by senior management and region where the company. There is a negative correlation between the proportion of independent directors on the board, the proportion of shares held by senior executives and the executive compensation, and there is a positive correlation between the size of the company and the executive compensation. And the executive compensation in the eastern regions is generally higher than that in the central and western regions.