Research On The Executive Compensation Incentive Of Enterprise Based On Relative Performance Evaluation

Listed companies executive pay has been a widely concerned problem.Executives’ sky-high compensation recently aroused much public doubts, the core is the match with executive pay and corporate performance, and how effective incentive senior management has also become a research focus. In relevant literature, executive pay have no sensitivity with performance,some scholars think the problem is no distinction firms size, region and industry and other factors in research, but the most importantis the corporate performance variables using absolute performance. The enterprise performance should be divided into two parts, one part is the performance form the efforts of the executive, and called enterprise relative performance, another part is the performance from the market environment is called industry weight performance. In order to better analyze the sensitivity between executive compensation and corporate performance, we need to evaluation the enterprise relative performance. Holmstrom made "relative performance evaluation hypothesis”in 1982, the principal compare the agents’ performances from similar or related nature of the work of agents, get the relative performance of agents. With this approach to eliminate the market performance of "noise", the contribution of agents will show up in the process is similar in performance between enterprises.Based on the relative performance evaluation in overseas study, combining the current situation in our country, we used the data of listed companies in China from2005 to 2014 for empirical research. First of all, using Holmstrom model set enterprise relative performance indicators, to distinguish the relative performance of enterprises and their own performance, different from the industry average is used to determine the relative performance, the subsequent article will conduct a detailed explanation. Subsequently, the article by sub-sector, sub-population, sub-individual test whether the use of relative performance evaluation of executive compensation,and inspection using relative performance evaluation of enterprise, the executive pay to corporate performance incentive effect is better. Finally, according to the empirical conclusion, expand Relative Performance Evaluation of Chinese enterprises listed in the application put forward relevant countermeasures.The main conclusions of this paper are executive compensation in some industries have a certain degree of relative performance evaluation, but the overall is not obvious, and using relative performance evaluation of enterprise, the executive pay to corporate performance incentive effect is better.