On The Relevance Of Rationality Of Executive Compensation And Independence Of Board Of Listed Companies In China

The compensation of executives has always been considered to be the key point of solution of the principal-agent problem between shareholders and managers.Since the event of extremely high compensation happened in 2008,the topic of executive pay raised heated debate,so caught the continuous attention of the governments.In August 7,2009,the Ministry of human resources and Social Security jointly with the Central Organization Department,the Ministry of supervision,the Ministry of finance,the Audit Commission,the State Council,the S AS AC and other units jointly issued "the Guiding Opinions on further Regulation the Compensation management of the central SOE",which was called "the Instruction of Restricting Compensation of Executives in SOE" and the first"Instruction" in China.In August 2014,the Politburo of the CPC Central Committee adopted the "the Program of the Reformation of Compensation of Executives in central SOE",which would be implemented in 2015,and the pay cut would became the focus of reform.Shortly thereafter on February 9,2015,the State Council,the SASAC released the "Notice of conscientiously evaluating the Operating performance of executives in charge of central SOE",deploying a new annual work for evaluating the central enterprises operating performance.It also required that in 2015,the central enterprises of whose revenue decreases,the total compensation of whose will not be allowed to grow.On August 24,2015,The CPC Central Committee and the State Council promulgated the "Guiding Opinions on Deepening the Reformation of SOE",which indicated that the assessment and management of the board should be strengthened and the construction of the board should be promoted,containing establishing and refining the board to be the equal rights to equal responsibilities,coordinated operation,effective checks and balances in the decision-making,execution and supervision mechanism,regulating the chairman and general manager of exercise behavior,giving full play to the role of the board of directors when they decide,effectively solving some problems of useless board,"top leaders" said the count,realizing normal corporate governance.From a series of policies and a number of stresses,it can be inferred that Party Central Committee attached great importance to the promotion of setting up more reasonable compensation and constructing of the board of directors(especially the independence of the board of directors).Then how could the broad be more independence,and how could we enhance the rationality of the compensation?This paper explores the influence of board independence on the rationality of executive compensation from three aspects:the duality of managers,the proportion of independent directors and the way of director's receiving their compensation.This paper mainly consists of six parts.The first chapter introduces the research background,research significance and the innovation of this paper.The second chapter is the definition of the concept and literature review,which start with definition of the rationality of executive compensation and the independence of the board,and the literature review by this order,and end up with the summary of the review.The third chapter is the theoretical analysis and hypothesis.In this paper is based on the Optimal Contract Theory and Principal-Agent theory,expounding the influence of board independence on the rationality of executive compensation from the perspective of management power theory,selecting three factors containing the manager's duality,the proportion of independent directors,the proportion of directors who do not receiving remuneration form the listing Corporation,putting forward the hypothesis of the influence of the three on the rationality of executive compensation,hypothesizing the impact on the rationality of compensation of these three factors.The fourth chapter is the research design,selecting all Listing Corporation in A share market as the research sample in 2012-2014,using executive compensation as explained variable,the difference between the performance of the company and the relative performance of the industry,the manager's duality,the proportion of independent directors,the proportion of the directors who don't receiving compensation from the listing Corporation as explaining variable,the company's size,asset-liability ratio,growth opportunities,the proportion of the first major shareholders,industry properties and annual variables as control variables,establishing the multiple linear regression model to identify the effect of board independence on the rationality of executive compensation.The fifth part is the empirical analysis,using large sample statistical method,operating STATA.11 software to conduct fixed-effect re,gression analysis,and the corresponding descriptive statistics,correlation analysis,empirical results analysis and robustness test.The sixth chapter is the research conclusions and recommendations,including increase the proportion of independent director,build up stricter selection system of independent directors and sound reputation mechanism of independent directors,constrain of executive rights,change salary payment to break the cronyism culture of the board.This paper mainly draws the following conclusions:(1)China's listing Corporation's executive is relatively reasonable,in which the state-owned enterprises is more performance oriented than not state-owned enterprises.(2)The manager's duality will significantly reduce the rationality of executive compensation in China's listing Corporation.(3)the impact on increasing the proportion of independent directors to the rationality of executive compensation is only effective in the SOE,while in the non-state-owned enterprises is not.(4)the influence of increasing the proportion of the directors who do not receiving compensation from the listing Corporation to the rationality of executive compensation is only effective in the state owned enterprises,while in the non-state-owned enterprises is invalid.The innovation of this paper is to measure the rationality of executive compensation from the respect of the relationship between the performance of the company and the relative performance of the industry and the executive compensation,and weigh in the explanation of the different degree of influence between the state-owned and non-state-owned enterprises.The shortage of this article is the measure of variable,i.e.executive compensation,deficiency of the perks and stock-based compensation.