An Empirical Study On The Impact Of Listed Commercial Banks' Competitiveness On Their Executive Pay

Each year when the listed companies disclose their annual reports, the controversy about financial executive pay will appear. When 16 listed commercial banks disclosed their 2014-annual reports, bank executives pay also exposed. With the government order to limit executive pay, market-oriented reform of interest rate and under the shock of the internet, bank performance slowed down. However, in 2014, bank executives pay rose up a little overall, the gap on executive pay in joint-stock commercial banks was obvious. The highest salary of chairman and president who worked a full year in 16 listed commercial banks is, the president Shao Ping of Ping'an Bank. He gained pre-tax salary of 8.3527 million yuan, also had a salary of 8.3326 million yuan in2013. Meanwhile, the president Peng Chun of Bank of Communication only gained a salary of 1.0076 million yuan. His pay had a gap of seven times with Shao Ping. Although the executive pay in four state-owned banks rose up a little in 2004, compared with Ping'an bank executive pay, they still had great gap. The reason is that Ping'an Bank prices its executive pay through market-oriented pricing. However, the four state-owned banks award their executive not only by money, also by political treatment and position arrangement. Banking executives' pay may make a lot of people envy. But with the performance of banks declining, the management for bank executives became more difficult. The order to limit salary will implement in 2015, it means the state-owned bank would get only a maximum of 600000 yuan. More banks begin to executive deferred compensation, makes bank staff and executive compensation "only see, but not get", salary to pockets may be discounted. Generally speaking, bank executive pay contains explicit compensation and invisible benefits. But according to the Eight Provision of the State, invisible welfare would be compressed. To a certain extent, it can inhibit the unreasonable sky-high executive pay, but China takes social market economy with Chinese characteristics. If executive pay can decide according to market-oriented pricing, it can enhance the executives'enthusiasm and creativity, it also can earn more profits and revenues for the bank shareholders. Therefore, in order to design reasonable and effective compensation incentive mechanism for executives, the study about the impact of commercial banks competitiveness on executive pay is meaningful.As important intermediary of macroeconomic and important hub of financial industry, the development of commercial banks has great influence on the national economy. Compared with general enterprises, the governance of commercial bank are also more complex. How to manage the commercial banks is of great significance to the development of banking and financial industry. Because the governance of commercial banks is difficult, it pays generous compensation to executives. Basically, top pay for executives is obtained by bank executives. With the transformation and upgrading of China's economy and the deepening of financial reform, especially the advancement of marketization of interest rate, the income by spreads of commercial banks affected a lot. The admittance mechanism to banking industry is becoming more and more wide, foreign banks with advanced management and governance means is also competitive to China's banking industry. All these give great challenges for China's banking industry. Designing reasonable and effective executive pay of listed commercial banks can well solve the problem of principal-agent, makes the target of bank executive same with the target of shareholders. By doing this, commercial banks can improve their competitiveness of commercial banks, so as to develop better in today's environment of opportunities and challenges. The emergence of the principal-agent problems is mainly caused by the separation of contemporary enterprise's management rights and ownership. Because of the problem of principal-agent, designing reasonable executive pay can make the executive work hard for the banks, and also maximize the use of their own resources, also enhance the competitiveness of banks, lay a solid foundation for bank development. Also reasonable and effective executive pay can erase the widespread confusion why bank executives pay are so high.This paper first defined the terms of executive pay and commercial bank competitiveness, reviewed the theory about corporate governance, and looked up related literature about executive pay and commercial bank competitiveness at home and abroad. All these played a solid foundation for empirical analysis of the paper. Second, this paper studied the current situation of bank executive pay; found that our country commercial bank executive pay changing from fixed compensation to basic compensation and performance compensation. Third, this paper built evaluation system of commercial bank competitiveness by summarizing the research on commercial bank competitiveness at home and abroad. In this paper, we constructed the evaluation system of competitiveness by selecting 11 evaluation indexes of bank financial aspects, then using entropy method to measure the weight of each index. Finally, by multiplying each bank's financial index with the weight, we can get the competiveness of each bank.Before doing the empirical analyses, we put forward four hypotheses. Then we chose the date of 14 banks which were listed before 2007, the time span from the 2007 to 2014. The date collected from CSMAR, Wind and bank annual report. We selected the average of top three executive pay as the proxy of executive pay; the proportion of state-owned shares and state-owned institutional shares in top 10 shareholders as the proxy of the power of government; the proportion of the independent directors in board as the proxy of the independence of board; the logarithm of Asset asset as the proxy of bank Asset asset; competiveness level computed by entropy method as the proxy of commercial banks competitiveness. Finally we used the regression of the panel date model to get the empirical results, the results showed that the bank competitiveness had a negative relation with executive pay. Also the power of government control and independent board had a negative with executive pay. We didn't find any significant relation between the Asset asset and executive pay. In order to further understand the sensitive relation between bank competitiveness and executive pay, by using the regression of another panel date model, found that they had a negative sensitive relation. Also, we construct new panel model to regress the sensitivity of state-owned bank and non-state-owned bank by adding virtual variable. The results showed that the state-owned bank had lower sensitivity than non-state-owned bank. Then we concluded this paper by putting forward seven policy suggestionsThe main innovation of this paper lies in the innovation of research perspective and research method. We have distinct difference with previous scholars who studied the executive pay only from the performance; we study the executive pay from competitiveness of bank. Also we use the virtual variable to distinguish the state-owned bank and non-stated owned bank. We study the bank competitiveness by using entropy method to avoid the human disturbance, makes the competitiveness level more objective.