Research On CEO Compensation Structure Of Listed Companies

In this paper, we make a research on the optimal compensation structure of listed companies’CEOs. In China, listed companies started equity incentive for their CEOs since 2006. Especially in recent years, the number of listed companies who implemented equity incentive increased significantly. Listed companies must consider what’s the reasonable compensation structure for their CEOs. This paper finds that, in the samples, the efficiency of equity incentive in form of stock option is questionable, for it does not maximize the interests of shareholders. The paper has important theoretical and practical significance for solving the problem of interest conflicts in corporate governance between shareholders and CEOs.In 2012, a total of 75 listed companies in China who implemented equity incentive can be used to calculate the Representative Option and make optimization of compensation structure. This paper takes these 75 CEOs as samples. The paper is based on Holmstrom principal-agent model, using the calibration method with MATLAB to solve nonlinear optimal planning. The results showed:First, the optimal compensation structure suggests fewer stock options in CEO’s compensation. Secondly, more restricted stock and salary should be included in CEO’s compensation. Thirdly, as the level of risk aversion decline, more stock options should be included in the optimal CEO’s compensation. Fourthly, compared with the optimal compensation structure, it is significant that the samples of CEOs are overpaid.