Executive Compensation, Management Power And Tax Planning

With the sustainable development of capital market, tax planning enters into thecore areas of business gradually, and Executive compensation issues have beenserious, both of them get more and more attention from executives, shareholders andscholars. But the research about tax planning started late and the related achievementsare not rich. The research on the executive compensation has been going on for a longtime, especially the phenomenon of ‘high compensation’ and ‘zero compensation’exposed by the media in recent years push it to the forward, and the achievements arequite rich. The both get more and more hot in their respective fields, and the resultsare increasingly abundant. But the research related to the relationship of compensationand tax planning can be dated back to the paper published by the Manzon&Plesko in2002, the time isn’t long. Then we can find that the research mostly stayed in thetheoretical analysis stage, empirical study is quite scarce by combing the literature.With the gradual improvement of China’s tax system, our government has stronglyadvocated tax planning for the consideration of their own and company’sdevelopment. What’s more, the move closes the shareholders’ mind. Just as Desai said,the company’s tax expenditure is the biggest spending except for audit fees. Thisarticle is rooted the background of our government approval and encourage taxplanning, based on the reading literature and theoretical analysis. With the doubt ofexecutive compensation could enhance the tax planning enthusiasm, the article beginsempirical analysis. Establishing the theoretical model of the relationship betweenexecutive compensation and tax planning by using the principal-agent theory, and thesuppose is confirmed. Secondly, due to the phenomenon of ‘astronomical salaries’ and‘zero salary’ coexistence, and even the ‘upside down’ phenomenon of executive paygrowth and growth for the company, the optimal contract theory can’t be a reasonableexplanation. Then the article seeks the influence of management power on executivecompensation based on the perspective of the management power authority, andfinally further explores what impact it will have on the relationship between executivepay and tax planning, how deep the degree of influence in order to provide theoreticaland empirical evidence for China’s listed companies to improve executive pay policy,give management authority reasonably. Based on all the A-share listed companies from2008to2012as sample,checking the relationship of management power, executive compensation and taxplanning by establishing the panel data and multiple regression model，we can cometo the following conclusions:(1)executive compensation really helps deepen theextent of tax planning，for tax planning due to management in terms of high-risk, highcost, and the effect is not necessarily high, even a large part of the effectiveness of taxplanning will be needed for a long time in order to reflect. For executives may notexpect to carry on the tax planning, positive taxes can not only win the reputation, butalso reduce the tax risk. All of above indicating that the optimal contract theory has agood ability to explain to some extent;(2)the expedition of management power helpsexecutives improve their pay, because of the greater power, more ability to influencethe development of policy on the remuneration of the Board of Directors;(3)therelationship between executive pay and tax planning is affected by the managementpower. At higher power management, the bound on the development of executivecompensation from shareholders and board becomes smaller. Thus the managementauthority would weaken the influence of executive compensation on tax planning, oreven make it negative correlation.Therefore, related countermeasures are proposed in this paper: firstly, accordingto the theory of effective tax planning, tax planning is helpful to improve enterprisevalue, standing in the perspective of shareholders, they prefer operators carry on thetax planning actively; Secondly, according to the effective contract theory, in order tolet the operator standing in the perspective of shareholders and the company operatecompany, and intend to carry out the tax planning measures, shareholders shouldgive the operator pay, weigh up the level of salary incentive reasonably; at last,according to the theory of management authority, certain power also belongs to theincentives, but the expansion of the operators’ power makes salary incentives can’tplay its due role. Thus shareholders may give reasonable management power to theoperator, for they can provide better service for the company.