Research On The Impact Of Unrealized Income On Corporate Executive Compensation

Under the background of the international convergence of accounting standards,in order to make up for the shortcomings of historical cost measurement to measure financial instruments and their derivatives,China has cautiously introduced fair value measurement in 2007,which make financial assets and unrealized income began to attract attention.With the deepening of the concept of comprehensive income,in 2009 and 2014,China has respectively carried out two important reforms on “special” profit— — other comprehensive income which is not reflected in net profit,and further standardized the measurement of fair value.Through these reforms,it has attracted the attention of the practical circles,and at the same time it has led to the relative exploration of many scholars.For another,in the modern enterprise system,because of the management rights are separated from the ownership,the owner authorizes the business management of the enterprise to the operator who is responsible for daily business operations,and judges their ability according to the completion of the management tasks,and then gives corresponding compensation.This principal-agent relationship is balanced by the compensation contract.It can be seen whether the formulation of the contract can comprehensively and objectively reflect that the contributions of senior management personnel will directly affect their work enthusiasm and thus affect the growth of the enterprise.China has always followed the traditional model of “porformance ralated pay”.After the the introduction and standardization of fair value measurement,the performance range has expanded from net profit to comprehensive income.Whether the evaluation scope of executive compensation has been based on comprehensive income,and whether other comprehensive income which not reflected in net profit should be included in the salary assessment scope are problems worthy of investigation,because the realization of the profit is also inseparable from the management's concern about the fluctuation of the capital market and the ability to purchase and sell financial assets in time.Whether other comprehensive income becomes one of the indicators which determine the senior management's salary? Whether the behavior of senior executiveswill be further affected by the amount of other comprehensive income? And whether the internal environment of the enterprise affects the relationship between the two?These are the main research issues in this paper.These findings will provide theoretical and practical support for the improvement of other comprehensive income disclosure and the rational formulation of executive compensation contracts.According to introducing the institutional background of unrealized income and reviewing domestic and international research results of related topics,and based on the important theories of unrealized income and executive compensation,the mechanism of influence of unrealized income on executive compensation from the perspective of other comprehensive income was derived and the research hypothesis of this paper was put forward.Taking the 2010-2017 Shenzhen and Shanghai A-share listed company as the research sample,through the variable selection and model design,a series of empirical analysis were carried out by statistical software to verify the hypothesis.The study found that other comprehensive incomes have a certain impact on the salary of executive.However,the degree of the impact is not enough to allow executives to increase salaries when the unrealized income is positive,and to make excuses to avoid punishment when it is negative.That is to say,the phenomenon of “heavy reward and light punishment” is not reflected in other comprehensive income.The reason may be that the salary assessment of executives still mainly relies on net profit indicators,because “functional locking” still exists.In addition,the text also found that the ratio of financial assets held by enterprises and the internal governance environment of enterprises will affect the relationship between the two.The more financial assets are held,the more restrictive to executives,the closer the relationship between other comprehensive income and executive compensation will be.In response to these findings,this paper proposes relevant recommendations and looks forward to future research.