Research On Incentive Mechanism Of Independent Directors Facing To Supervision Behavior

The affairs that management injured the shareholder benefits and social benefits have often occurred. It indicates that the stipulation of exterior market and agent market can not prevent the insider control and moral hazard. Exactly under this background, it has acquired extensive agreement that independent director institution can be used as a valid measure to corporate governance and be used to balance the executive directors and management layer. The establishment and development of independent director institution all over the world has played an important role in controlling management, advancing corporation performance, protecting owner's equity, etc. Independent director institution is an institution innovation of enterprise, derived from west countries for perfection of corporate governance. As an effective method to improve and perfect corporate governance structure, the independent director institution has been paid more and more attention to.Independent director is the director who has no contract relation with the company except the status of director. He is neither an employee nor a relative, a provider, a dealer, a fund-provider, nor the representative of the provider with law, account, audit, management advice service. He has no relation with the company in corporate decision, affair exercise, nor controlled or impacted by other directors. Independent director institution includes provision of independent director's independence, the role in the directorate, requisite ability, process of election and appointment, term, reward, independent directorate discuss, etc.The independent director should be defined as: one of the board of directors of' the listed company, which possesses own independent will, delegates the whole shareholders of the listed company and the whole benefits of the listed company, who has not beneficial linkage with the listed company except acquiring salary from the listed company. The independent director institution arose from the development of theories and practices of modern corporate governance.The independent director institution,is a unitary model system to balance shareholders, prevent internal members from abuse of power, and thus effectively protect the legitimate rights and interests of company and shareholders as a whole and strengthen supervision to managers of company by reducing agency cost and overcoming internal control from insiders. To introduce independent director institution into listed companies in our country can contribute to establishing a reasonable and scientific corporate governance structure, preventing internal control from insiders and protecting the rights and interests of the medium and small shareholders.The main functions of independent directors' are to supervise the bigger shareholders, the managers and the executive directors effectively and to protect the interests of listed companies, especially the interests of the medium and small shareholders through the establishment of constraint mechanism inside the board of directors. Besides, the representation of all shareholders' interests, especially the interests of the medium and small shareholders and the evaluation of the managers and executive directors' work are also the functions of the independent directors in our country. The publication of the Chinese Securities Regulatory Commission's"Proposed Guidelines on Establishing the Independent Director Institution in Listed Companies"on August 21,2001 marked the official beginning of the independent director institution in the listed companies of China, which has settled a good base for the establishing of the canonical institution of independent director in the listed companies.The independent director must be looked on as an economic person. His request for benefit should be acknowledged. And the independent directors'incentive, as an important component, is always a recurring debate and a hard nut to crack because of their special duties in corporate governance.The incentive theory indicates that the independent director in essence is both an economy-orientated person and attorney of the company, so he should be inspired and limited in a scientific way. The importance and necessities of independent directors'incentive can be explained in many aspects. The role of the reputation institution and monetary incentive motivating independent directors to work hard can be demonstrated in the aspect of economics. In the lack of reputation institution in China, independent directors should get more salary especially.Research on incentive mechanism of the independent directors in our country still stays around the norm research stage. This paper will study the factors influencing the salary of the independent directors of the listed companies in China by means of empirical method. This will be an innovation. The linear regression model is also put forward to study these factors.