Assume Executive Pay System Based On Performance And Commercial Bank Risk

After the global financial crisis caused by the 2007 sub prime crisis broke out, all sectors pay attention to the financial institution's executive system. Governments trying to promulgate salary limit order and other measures to control the level of executive compensation of financial institutions and prevent they pursue high salaries doing risk-taking behavior, so as to achieve the purpose of reducing the risk of commercial banks. In scholars' studies, executive pay is important factors that affect commercial bank exposures, these studies only consider the impact of executive compensation on commercial bank exposures, ignoring the impact on commercial bank risk-taking executive pay, and rarely involved in the regulation impact the relationship between the relationship.The ownership and management of modern corporate are separated, shareholders' objectives inconsistent with the managers' objectives, for the target of shareholders is maximize the bank's profits, while the objective of managers is maximizing their own interests, the conflicts of interest between shareholders and managers are resulted. To promote consistency in the interests of executives and shareholders, to solve the principal agent problem, a common practice is to link executive pay and performance. At present, most countries in the world to achieve the bank executive pay related with bank's performance, China's commercial banks since the 1978 reform, executive pay into the system from a fixed wage system is mainly linked with the performance of the system. In performance-related compensation incentives, executives are more likely to earn high salaries of high-risk high-yield investment projects, increase risk-taking commercial banks, investment in the success of the project will affect the level of bank performance, thereby affecting executive pay. Regulators can be suppressed executives risky behavior, reduce risk of commercial banks by raising bank capital adequacy requirements and other regulatory measures.Executive compensation system and commercial bank exposures exist complex two-way relationship, in order to better reflect this two-way relationship, the paper listed commercial banks in my country as a sample, to establish executive compensation and commercial bank exposures of simultaneous equations, using single equation estimation method(2SLS) estimation method and system(3SLS) built on the simultaneous equations model for statistical analysis, the presence assume executive pay system based on commercial bank risk and positively related to performance relations, banking regulation will strengthen the main empirical results of commercial banks risk sensitivity of executive pay. Based on theoretical analysis and empirical research findings, this paper presents the development of executive pay should be taken into account risk factors, increase the proportion of independent directors, give full play to the role of independent directors and the supervisory departments should strengthen supervision of commercial banks and other policy recommendations.