| Executive compensation has always been a controversial issue with wide concern. Espe-cially since the global financial crisis erupted, the high annual salary easily up to ten milliondollars of Wall Street financial institutions'top executives and the "surprise bonus" behaviorhave been suffered in the teeth of the storm. However, in Chinese listed companies, the coex-isted "sky-high salary" and "zero pay" scene of confusion has also drawn public attention.Although stories appear frequently in the press exposing executives influence self-dealingcompensation based on their power, Chinese scholars have rarely discussed about it. Based onthe unique institutional background of Chinese listed companies, from the perspective ofmanagerial power, this paper research on executive compensation contract more systematicand in-depth combined with the regional marketization dynamic change process for the firsttime, to further refine the executive compensation incentive system for Chinese listed compa-nies and provide a theoretical reference and empirical evidence to improve the effectivenessof executive compensation contract.On the basis of the theoretical and institutional background analysis, this paper suggeststhat due to the "predominant of one" and "insider control" and other defects of internal cor-porate governance mechanisms, an excellent opportunity is offered for executives of Chineselisted companies to exercise their power to influence self-dealing compensation. At the sametime, external governance mechanisms are not perfect so that to supervise the executives'rent-seeking behavior is more difficult to deal with. Therefore, based on managerial powertheory, discussing the managerial power effects of Chinese listed companies' executive com-pensation contract to some extent has theoretical and realistic foundation.Firstly, we apply the sample of the Chinese listed companies during2004to2010, andtests the relationship between managerial power and executive compensation by constructingmultiple regression model based on panel data. The result shows that managerial power hassignificant positive relation with executives actual monetary remuneration, the actual perks,excess monetary compensation and excess perks. In other words, the greater the managerialpower, the higher the amount of monetary remuneration and perks and the amount of excessmonetary compensation and excess perks of private benefits.Secondly, this paper also from the perspective of economy transformation, studies the in-fluence of regional market-oriented reforms on the relationship between the managerial powerand executive pay incentives and their effectiveness, by statistical group comparison andbuilding a panel data multiple regreesion model. We found that market forces spawned by the market-oriented reforms significantly own the role of shaping the specific association be-tween managerial power and executive pay and mainly achieved by significantly weaken thepositive effect of managerial power on executive compensation. A further study finds that, inthe different context of ownership, market-oriented reforms have focused on the content ofshaping the power effect in the executive pay incentives. Specially, in the local state-ownedenterprises, market forces have much more significant inhibitory effect to influence the be-havior of executives grab the monetary private benefits using their power; while in the centralstate-owned enterprises, market forces have better governance effect to influence executivesobtain the behavior of perks and other non-monetary private benefits using their power.Thirdly, now in Chinese listed companies, executive compensation incentive has a cer-tain of validity, but the managerial power will weaken the incentive effect to a certain extent,and show a negative effect characteristics. Based on structural pay, this study finds that theeffectiveness of executive compensation incentives mainly due to non-handling perfor-mance-based pay; handling performance-based pay based on managerial power shows a sig-nificant negative effect. Considering market-oriented reforms factors, market forces can sig-nificantly strengthen the sensitivity between the executive pay or incentive pay with the en-terprise value; the value effect of managerial power and manipulation pay also weaken in themarketization process. Therefore, market-oriented reforms enhance the role of executivecompensation incentive validity, suppress and weaken the negative effect of managerial powerin the compensation contract, which is the main way to shape the effectiveness of the com-pensation contract.Lastly, from the perspective of governance manipulation compensation, the paper dis-cusses specific measures to improve the effectiveness of executives incentive pay for Chineselisted companies. It finds that using the diversified executive incentives methods, such aslong-term equity incentives, changing ultimate control strategy from vertical to the matrix,increasing the percentage of institutional ownership, taking enterprise-level improvementstrategy, such as enhance external audit quality, lowering governmental intervention degree,improving regional level strategy, such as legal and institutional environment can have greateffect of restraining compensation manipulation and strengthening compensation contract va-lidity.
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