Managerial Power,Board Interlocks And Executive Compensation Stickiness

Based on the optimal contract theory,effective executive compensation contract is an increasing function of enterprise performance.However,this is based on the premise that compensation contract's makers(board of directors)are completely independent and rational.Managerial power tends to deviate the compensation contract from its original goal,triggering the issue of executives over pay and pay stickiness.In recent years,the phenomenon of "Sky-high executives' compensation" continues to heat up.Many scholars also found that there is an asymmetric change between executive compensation and enterprise performance(Executive Pay Stickiness).The reason for this is largely due to the executive self-interest behavior under the power of management.The expansion of managerial power reflects the imperfect the imperfection of internal corporate governance mechanism.It is very likely that managerial power will infiltrate the board of directors,and manipulate compensation decisions.The social network theory believe that board governance can be consolidated through the network connection.In other words,the directors who hold concurrent positions in different boards of directors(board interlocks)can better exert the function of the board of directors in corporate governance and optimize the compensation contract.Some researches show that the power of management is one of the important reasons leading to the high salary of executives.Then,what is the relationship between managerial power and executive pay stickiness? What role dose director's connection play in the relationship of managerial power and executive pay stickiness? The above is a problem worth thinking about.The paper is manly from the perspectives of managerial power and directors' connection,to restrict the issue of stickiness of executive pay as a breakthrough point,and analyzes the correlation between managerial power,directors' connection and executive pay stickiness.In this paper,we selected the data of Shanghai A-share listed companies from 2012 to 2016 forthe empirical test.The empirical results found that:(1)There is a common sticky features of executive compensation in China's listed companies,namely the decrease of executive compensation when the performance declines is significantly lower than the rises when the performance increases.(2)Managerial power will exacerbate the stickiness of executive compensation.(3)Board interlocks has a significant influence on the relationship between managerial power and executive pay stickiness under the different connections and different network centrality.Finally,this paper puts forward some policy recommendations to solve the problem of stickiness of executive pay according to the empirical results.