The Impact Of The Fellow-villager Relationship On The Performance Effectiveness Of Executive Compensation Incentive

The problem of executive compensation has always been widely concerned by the society,and it is also the core content of corporate governance.Compensation contract is one of the main mechanisms to solve the agency problem.Enterprises have been seeking to formulate a reasonable compensation contract to encourage managers to better serve the company and improve the performance of enterprise.Since 1997,The China Securities Regulatory Commission(CSRC)has been increasing the information disclosure of executive compensation.Academic circles have carried out substantive research on executive compensation,and the influencing factors of the effectiveness of executive compensation incentive have become the focus of attention.Scholars have done a lot of research on the characteristics of enterprises,such as the size of enterprises,as well as the market environment,such as the process of marketization,but less research has been done from the perspective of social relations,which is an informal contract.The basic ethical characteristic of Chinese culture is the relationship standard,and the fellow is a unique and important local concept in China.Chinese people generally have the psychological effect of fellow villagers and the identity of fellow villagers.Scholars have found that the informal contract of fellow-villager relationship also plays an important role in corporate governance.On the one hand,it plays a positive effect based on communication and trust mechanism,which can reduce agency costs and so on,on the other hand,nepotism has a negative effect,which will enhance the operational risk of enterprises and so on.So whether the fellow-villager relationship will affect the formulation of remuneration contracts? Is there any difference in the influence on the effectiveness of managers' compensation incentive under different circumstances? Whether this effect complements or replaces the formal system? From a new perspective,this paper introduces the fellow-villager relationship between the chairman and the general manager into the enterprise framework,and studies the influence of the fellow-villager relationship between the chairman and the general manager on the effectiveness of managers' compensation incentive through theoretical analysis and empirical test.Based on the sample of A private listed companies in China from 2008 to 2017,this paper measures the fellow-villager relationship with the consistency of the place of origin of thegeneral manager and the chairman,and tests the influence of the fellow-villager relationship on the effectiveness of manager's compensation incentive.It is found that the fellow-villager relationship between the chairman and the general manager will improve the effectiveness of managers' salary incentive.At the same time,At the same time,based on different periods and regions,this paper further analyzes the influence mechanism of fellow-villager relationship on the effectiveness of manager's salary incentive,and finds that with the increase of general manager's tenure,the positive influence of fellow-villager relationship on the effectiveness of manager's salary incentive is weakened.In addition,compared with the internal promotion,when the general manager comes from the external appointment,the positive influence of the fellow-villager relationship on the effectiveness of managers' salary incentive is enhanced.And the significant positive influence of the fellow-villager relationship on the effectiveness of manager's salary incentive exists only in the area with strong local culture,and regions with a high degree of marketization.The positive influence of fellow-villager relationship on the effectiveness of managers' compensation incentive will gradually decrease with the accumulation of frequency and time between the chairman and the general manager,and there are differences in the positive influence based on regional local culture.The fellow-villager relationship as an informal system further supplemented the formal system,but can not replace the formal system.The research in this paper expands the influencing factors of the effectiveness of managers' compensation incentive from the perspective of informal contract.At the same time,it also reveals the influence mechanism of the fellow-villager relationship on the manager's compensation contract.