| The separation of the ownership and operation of listed companies creates agency problems between owners and managers, it is important to design effective compensation system to make managers work for companies' long-term benefit. Considering the special circumstance of China, we start research on Chinese Public Listed Companies' Executive Compensation and Incentive Mechanism.Normally, executive incentives include money incentives and non-money incentives. Our study only focuses on money incentives. By both quantitative and qualitative analysis, our study answers that which factors can affect executive compensation, if current executive incentive can affect listed companies' performances, and how to design an optimized incentive mechanism.To study the effectiveness of executive incentive mechanism, the priority is to test if higher executive compensations can create better companies' performance. The further analysis is how to design the effective incentive mechanism. Our study have the empirical tests on Chinese listed companies' data, and get the results of that executive income have positive correlation with listed companies' performance, and listed companies' market performance, profitability, relative performance in industry, size, and holding of biggest shareholder can affect executive annual income.Multiple factors are proved to affect executive holding companies' share, however, we cannot find the managers' holding of companies' share can affect listed companies' performance. This result is quite conflict with the realities of foreign listed companies. To clarify the difference, we use game theory get the result that fixed compensation can be effective in special circumstance, such as current Chinese economy.Combine the results above with the update status of executive compensation abroad; we have summarized multiple recommendations to increase the effectiveness of Chinese listed companies' executive compensation mechanism.
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