A Study Of Hidden Incentives In The Management Of Chinese Enterprises

In the terms of the incomplete contract, agents determines the extent to which they make their efforts not merely by the pay prescribed in the open clauses in the contract, the hidden clauses can also become the significant element of motivation. Intangible factors such as power, status and fame of the management provide much greater impetus to managers than some materials factors like wage and welfare. Markets for the managers offer a platform for the exercise of hidden incentives, under whose control agents acted by the management of the enterprises need to defend and continue to enhance the individual's fame in the hope of more chances to be employed and higher pay. However, in the transitional period, the state-owned enterprises in China are confronted with more unpredictable matters. For instance, the structure of the property right in the future and the tendency of the management of the company in a large degree can't be known definitely. Another example: the managers' fame will bring about more rewards in the future. All these cause the management to be more concerned with present benefits, which results in more speculative operations. In China, there is neither long-term system to the expectations of the runners of the enterprises, nor perfect markets for the managers where the power of the hidden incentives can be displayed, which greatly weakens the effect of motivation on the management of enterprises. Recently, the competition in the Chinese market has been less severe, the mechanism of law and system less perfect, the internal regulating structure not satisfactory. All these are the major reasons for the moral risks for the runners of the state-owned enterprises. Against this background, the hidden incentives are hard to produce powerfiil effect. The key to the problems in the operating process of the enterprises in the transitional period, therefore, lies in the amelioration of the management structure of the owner of the enterprise, cultivation of markets for Chinese managers, perfection of the incentives to the management in the enterprises, reinforcement of the various external monitoring and controlling systems and smoothinteraction of major managerial factors. Ultimately, the realization of Chinese economic system can be achieved successfully.