Impact Of Managerial Power On Executive Compensation

In recent years, executive compensation is increased rapidly in the state-owned listed companies, which becomes a controversial topic in the public. The contractual arrangements could make executives act in the interests of shareholders as optional contracting approach, while the reality and empirical studies don’t confirm it. Managerial power approach suggests that executives have ability to influence the board, thus executives could affect the pay contract. Power executives could manipulate their pay contract. Executives are powerful in chinese stated-owned listed companies as the special system, is the Phenomenon that paying for worse performance associated with it? Basing on managerial power approach, using the date of the state-owned listed companies in china, this paper examines empirically the impact of executive power on compensation.1. Research contentsThe main contents of this paper as follows:(1) Establishing the logical starting point of this study. By reviewing the optional contracting approach and managerial power approach, we suggest that executives could influence the compensation contract by their power, which act as the logical starting point of this study.(2) The analysis of institution and theory. Based on the analysis of compensation institution and resources of managerial power, we study the impacts of executive power on compensation contract, which provides the basis for following study.(3) The impact of executive power to the monetary compensation. Using regression analysis, we study the impacts of executive power on executive compensation, pay-performance sensitivity and company performance.(4) The impact of executive power on perks. Based on reviewing the theory of perks, this paper examines empirically the impacts of executive power to perks and the impacts of perks to company performance.(5) The impact of executive power on stock option. Based on the analysis of stock option, firstly we make descriptive statistical analysis to stock option, and then examine empirically the impacts of executive power to the stock option by the logistic regression model.2. Important conclusions(1) Executives are powerful in chinese stated-owned listed companies under the institutional environment. The reform of state-owned enterprises delegates the control to executives. There is a dominant shareholder in the state-owned listed companies, which reduces the utility of the general meeting of shareholders. So the board is controlled by the major shareholder, executives who are the agent of the major shareholder have great power. In addition, the worse corporate governance in the state-owned listed companies and the capital market being not perfect makes the executives unconstrained.(2) Executives get high monetary compensation and reduce pay-performance sensitivity by their power in stated-owned listed companies. Study the impacts of executive power on executive compensation and pay-performance sensitivity, this paper suggests the following conclusions:executive power has a significant positive impact on compensation, the higher salaries are associated with powerful executives; executive power reduces pay-performance sensitivity, the salaries aren’t sensitivity to companies’ performance in which executives have more power; in the companies that executives have more power, executive salaries are more sensitivity to the profit than the loss, and are more sensitivity to the creasing performance than the reducing performance. The results show that executives in state-owned companies have power to affect the compensation contract. Comparing the performance of companies which executives have different power, there aren’t evidences that suggest more power leading to better performance. That indicates executive pay be not the way to solve the agency problem between executives and shareholders, become the part of the agency problem.(3) Executives in the state-owned listed companies take excessive perks. Perks are positive relation to the Executive compensation. This paper examines empirically the impact of executive power to perks, our findings suggest that executive power has a significant positive impact on perks, and there aren’t evidences suggesting perks substitute to salary. Further study suggests that perks has a significant negative impact on corporate performance. That indicates perks aren’t effective incentives to executive, and perks are the symbolize that power executives taking interests of shareholders.(4) Stock option isn’t incentive to the executives in the state-owned listed companies. Powerful executives take interests of shareholders by stock option. Using the date2006to2010of the state-owned listed companies in china, this paper examines empirically the affect of stock option. Our findings suggest that stock option affecting to executive is welfare rather than incentive. By the logistic regression analysis, our findings suggest power executive may receive a welfare stock option contract. That indicates that executives take interests of shareholder by their power. (5)Executive compensation contract doesn’t effectively solve the agency problem, instead becomes the part of the agency problem. The empirical results show that powerful executives have higher compensation, more perks, welfare stock option, and less sensitivity of pay-performance. On the other hand, although executive compensation is positively related to company performance, perks are negatively related to company performance, executive power isn’t relevant to company performance. This suggests that executives affect the incentive contracts by their power, which makes incentive contracts not solve the agency problem between executives and shareholders, while incentive contracts become the part of the agency problem.In order to effectively incentive executives, we should reconstruct incentive mechanism between executives and shareholders, improve corporate governance, and improve the market discipline mechanism.3. Innovations(1) Based on managerial power approach, we study systematically the executive compensation contract of the chinese state-owned listed companies. Managerial power approach suggests that the board is no longer on behalf of shareholders completely, and executives have ability and motive to influence directors, and executives could affect the compensation contract. The special institutional environments of state-owned enterprises give executives great power, which provides good conditions to test managerial power approach.(2) Taking chairman of the board t as CEO, we study the impacts of executive power on compensation by introduction of personal characteristics. The chairman who gets salaries is equivalent to CEO, and chairman of the board should be the representative of executive team. By the way, the conclusion of study is creditably.(3) Based on the special institutional background of state-owned enterprises in China, this paper not only examines the impacts of executive power to compensation contract, but also studies the effects on company performance of executive power and compensation incentive contract. This study suggests that executives affect the incentive contracts by their power, which makes incentive contracts not solve the agency problem between executives and shareholders, while incentive contracts become the part of the agency problem. So the paper empirically examines managerial power approach.