Study On Chinese State-Owned Enterrises Senior Executive Remuneration Incentive Mechanism

Since the 1980s, state-owned enterprise senior executive remuneration incentive mechanism has received broad attention from theorists, practitioners and government. The global financial crisis in 2008 brought many companies in trouble, which suffered decline in sales, difficulty in getting loans, nose dive in stock price and sharp decline ’in market value, but the corporate senior executive remuneration remained high. How to determine the remuneration of senior executives has become the focus of attention. The United States convened economists to discuss this issue, and "G20" financial summit also enlisted this issue as one of its key topics. In China, after the economic crisis, the State-owned Assets Supervision and Administration Commission of the State Council and related departments re-examined the remuneration of senior executives in state-owned enterprises in China. At the Third Session of the Eleventh National People’s Congress, Premier Wen Jiabao in his government work report pointed out the necessity to "reform the income distribution system in 2010," "strictly regulate income of executives, especially senior executives in state-owned enterprises, financial institutions, and improve the regulatory approach." In the post-crisis era, it has become an important measure to improve and reinforce the corporate internal and external management by re-examining and reasonably designing the remuneration of corporate senior executives and its determinants.In this context, taking the state-owned listed companies as samples, this paper studied the state-holding listed companies’ senior executive performance appraisal after the split-share structure reform and tried to design the state-holding enterprises’ senior executive performance appraisal system and remuneration incentive system based on theory, system and current situation, as well as characteristics of state-owned corporate governance.This paper comprehensively applied related incentive theories of economics and management to set forth the necessity, means and methods of senior executive remuneration incentive, analyzed the applicability of the existing theories in explaining the senior executive remuneration incentive of the state-owned enterprises. At the same.time, the paper classified empirical studies and progress of senior executive remuneration incentive both at home and abroad, and pointed out lessons and shortcomings of the research findings in solving existing problems.The paper analyzed characteristics of state-owned corporate governance in aspects such as the so long principal-agent chain, the phenomenon of multi-task agent, state-owned asset management system, government intervention, fairness preference in regulation, and lack of incentive and constraint functions of the board in senior executive remuneration determination. This paper also indicated important topics to be solved to deepen the current state-owned enterprise reform and improve the senior executive remuneration incentive system, which include smooth relationship between government and enterprises, reform of state-owned enterprises senior executive selection mechanism and senior executive remuneration distribution. This paper also reviewed the historical evolution of Chinese state-controlled companies’ senior executive performance appraisal system and remuneration incentive system, evaluated the current performance appraisal, senior executive remuneration and government regulation etc. and pointed out that an effective state-owned enterprise senior executive remuneration incentive system needs institutional breakthrough.The paper collected the senior executive remuneration data disclosed by state-owned companies listed in the Shanghai and Shenzhen A share markets in 2005-2010, and made statistical analysis of the senior executive remuneration incentive conditions of Chinese state-owned listed companies after the reform; meanwhile, the paper made an empirical test on the determinants of the senior executive remuneration incentive and the impact of remuneration on business behaviors, finally analyzed and commented senior executive remuneration incentive status and problems after the share reform.Based on the analysis in this study, the paper proposed that the performance appraisal of state-owned enterprises should achieve the fundamental purpose of enterprise value increase, which should construct enterprise value-oriented senior executive performance appraisal system. On this basis, taking the senior executive human resources and its peculiarities in state-owned enterprises into account, the paper designed a state-owned enterprises senior executive remuneration system composed of short-term incentives and long-term incentives, positive incentives and negative incentives to be compatible with the performance appraisal system, which emphasizes match between senior executive remuneration and corporate value increase brought by the executives, as well as the value orientation.By setting the operator performance target consistent with that of the owner, the author expects to establish the relationship between compensation and performance, define remuneration formulation, allocation and distribution rules and procedures, effectively solve interest conflicts between state-owned enterprise owners and operators, achieve a win-win situation and promote the healthy, stable and sustainable development of state owned enterprises.