| Establishing an effective mechanism of executive incentives is the foundation of effective corporate governance and the premise of company steady development. But the imperfection of file existing corporate governance mechanisms makes executive compensation incentives to be a prominent issue.Although the top management pay policy is improving timely, a series of compensation governance methods and documentations have been launched sequentially, the actual effect is not expected."Sky roar compensation" and "Zero compensation" coexists, the pay gap strongly enlarges and the phenomenon of "Compensation only rises never falls" frequently happens, which warns us that is very urgent to manage top management compensation only through analyzing the key potential factors, recognizing the dark operation mechanisms and deepening reform can we crack the hard puzzles of higher paid compensation.The dominant approach which we call "the optimal contracting approach" to the study of top management compensation among academics has been proposed in a very long time. Under this approach, executive compensation contracts are viewed as perfectly designed to minimize the agency costs that exist between agents (top management) and principals (shareholders). However, this theoretical and practical mechanism is challenged by some scholars, especially, Bebchuk. The relative weakened external market and internal control mechanisms reduce the constraints on executive power. The expansion of the power is hard to control, which induces top managements influence their own pay, seize huge profits and conduct types of other short-term profit-driven behaviors at the expense of shareholders’ interest and the company’s vale. The frequently reported huge pay or sky high pay is no good from the current incentive mechanism It often contains more asymmetric pricing mechanism, which is fax away from the actual company performance and natural profit incentive produced by executive power.On the other hand, the studies found that government legislation may also affect the process of setting pay. In the case of executives abnormal compensation phenomenon intensified, in order to maintain the social order and appease the public discontent, the Chinese government began to strengthen the work of executive compensation laws and regulations and promulgated a series of papers. One of the most Influential papers is " Government Pay Restrained Policy" in September2009issued by the six central ministries in State Council’s consent, it clearly establishes that the highest pre-tax annual salary of executives in state-owned enterprises doesn’t exceed2.8million.Many state-owned enterprises had taken action with the introduction of "Government Pay Restrained Policy". On the surface, the introduction of "Government Pay Restrained Policy" curbs the phenomenon of the "astronomical compensation" in certain extent, but what is the truth? Is the Government Pay Restrained Policy really effective? Therefore, it’s particularly significant to discuss the economic effects under the government pay constrained policy, analyze the compensation changeable trails and understand the diversified earnings management strategies.Based on the above analysis, the main purpose of this paper is to study the relationship between the corporation executive power, executive compensation and the compensation limit order, and focuses on the following issues:does the executive power have any influence on executive compensation and the abnormal compensation? What change does "Government Pay Restrained Policy" to this effect?In order to answer those questions, we first review the principal-agent theory, the optimal contract theory, managerial power theory, to lay a solid theoretical foundation for this research; then, analyze the system background; then, combined with the system background of our country, based on previous theories and literature review, put forward the research hypothesis; finally, draws the conclusion as follows:the managerial power increases the probability of listed companies with the executive condensation and abnormal executive condensation as other variables have been controlled; the policy works well and inhibits the excess compensation from further increasing in some degree; Further study showed that "Government Pay Restrained Policy" do make some difference in controlling the executives using their power for rent-seeking to obtain greater abnormal pay. |
