Overlapping Membership Of Special Committees,Managerial Power And Executive Pay-performance Sensitivity

In essence,establishing an effective mechanism of executive incentives is regarded as an important way for modern enterprise to solve the principal-agent problem.Based on the optimal contract theory,the performance-based compensation contracts can motivate the executives to work harder and through promoting business value ultimately achieving the goal of shareholder wealth maximization.However,large amounts of domestic and international research literature indicate that executive compensation incentives can not completely solve the agency problem,the expansion of managerial power may make it become a part of the agency problem.Furthermore,the phenomenon of “astronomical salaries” and “zero salary” coexistence,and other compensation scandal in reality greatly challenge the authority of the optimal contract theory.,In recent years,a new theory about compensation contract which called managerial power has caused the attention of much more scholars.It can make reasonable explanation on compensation problems that "the optimal contract theory" is difficult to explain.According to managerial power theory,the executives may use their power to influence and hinder the compensation solution,look for methods to rent-seeking,obtain excessive compensation and reduce the effectiveness of incentive pay.At present,our country is in the crucial stage of economic system reform,the special system environment grant the bigger power to the executives of listed companies and create the conditions for them to influence their own pay,seize huge profits and conduct types of other short-term profit-driven behaviors at the expense of shareholders’ interest and companies’ value.Coupled with the relative weakened external market and internal control mechanisms reduce the constraints on executive power and achieve the goal of decide their own compensation.On the other hand,as the functional department of the board of directors,the compensation committee is mainly responsible for formulating the compensation plan for the executives and conducting performance appraisal.The rationality of its internal structure and personnel disposition has a significant impact on the effectiveness of the compensation mechanism.In recent years,the phenomenon of overlapping of audit committee and compensation committee is common among the listed companies both at home andabroad.This institutional arrangement shows that executive compensation is not only the result of the decision-making of the compensation committee,but also depends on the supervisory role of the audit committee.The existing literatures has discussed the influence factors of the overlapping of committees and the influence on corporate governance from different angles,But the results are relatively scarce and the conclusions are inconsistent,whether these conclusions in line with the actual situation of listed companies in China are still to be investigated.This paper selects 3741 samples of listed companies from 2012 to 2014 in Shanghai and Shenzhen A-share market as research object and draw the following conclusion: First,there exist a significant negative correlation between the managerial power and the pay-performance sensitivity in China listed company.the salaries are not sensitivity to companies performance in which executives have more power.Second,we find that overlapping of compensation and audit committees generate information advantages to develop a more reasonable compensation plan,and thus improve the pay-performance sensitivity.Third,the managerial power will offset the information advantages produced by overlapping committees.In the companies where executives are more powerful,overlapping memberships have less positive effect of the pay-performance sensitivity.Based on the conclusions,we put forward some suggestions from the perspective of improving the internal corporate governance structure and the external supervision mechanism to optimize compensation incentive,constrain managerial power and standardize the internal structure of board of directors.This paper analyzes and verifies the relationship between managerial power,overlapping committees and executive compensation.It not only proves that managerial power will destroy the effectiveness of compensation contract,helps to the reasonable distribution of managerial power of listed company,but also discusses the influence of the internal relation network of the board of directors on the pay-performance sensitivity and broadens the research perspective of governance efficiency of board of directors and executive compensation incentive.This paper provides a useful reference for optimizing the institutional arrangement of the special committee of listed companies in China,playing its governance role effectively and alleviating the principal-agent relationship.