A Study On Managerial Power,Managerial Capability,and Over Payment

The issues of the continual rising of the compensation and the over compensation of the top-executives of listed companies in China have caused a wide public concern.The reasons of the over compensation are hot academic research issues.Due to the "failure" of the compensation contracts,many scholars did some researches about the over compensation problem of the top-executives from the perspective of the managers’ authority;for the reasons of over compensation,the research conclusion is in favor of the view that the over compensation of the top-executives is the compensation which is gained through the power of the top-executives.In the compensation contracts of the top-executives,due to the existence of the top-executive power,the compensation of the top-executives are lack of incentive function,which will cause a higher agency cost instead.According to Fama’s(1980)point of view,over compensation is a reflection which shows that the ability level of the top-executives is higher than the average level or the executive board’s expectation towards the ability of the top-executives.However,doing research on the influence of top-executives’ ability on over compensation from the perspective of the top-executives’ ability is lack of systematicness.Which one does over compensation of the top-executives belong to,power compensation or ability compensation? Or even both? The premise for sorting out these problems is that the over compensation of the top-executives should be measured reasonably.Rational compensation is based on the managerial capability and the efforts of the executive to establish the compensation contracts.As the result of the managerial capability and the degree of the executive effort are not observed,the feasible method is inferring capability by individual characteristics and appraising the efforts of executives through their performance.The company performance is influenced by many factors,the individual factors of top-executives,the heterogeneous factors of company organization and market environment.Therefore,reasonable compensation should be established on the consideration of managerial individual characteristics,the difference of characteristics and environmental heterogeneity.The executive human compensation is judged by the managerial individual characteristics,and executive of organizational environment compensation is judged by the difference of characteristics and environmental heterogeneity.In the dissertation,the over compensation is the subject,and the compensation of general manager and chairman of the board are the body.With the human capital and compensation contracts theories and managerial power being the research view,it analyzes the effects of company achievements and managerial capabilities of individual factors,organizational factors and environmental factors;it measures the compensation of human capital and organizational environment by using the Hierarchical Linear Model(HLM).Management of the actual salary to use individual characteristic to explain as reward of human capital;to use company characteristics and environmental characteristics of the explanation is called organizational environment compensation.The personality variables,organizational characteristics and environmental heterogeneity variables can explain salary for executives,and the actual salary for executives over the expectation value is the definition for over compensation in this paper.Pay for over compensation is the nature of the power or capability,the effects of over compensation according to the results of the empirical analysis.Some reasonable advice is put forward to the listed companies on over compensation.This dissertation consists of seven parts.The first part is the general information.It gives a brief introduction of the background,research purpose and research significance.The basic conception of the executives of listed companies,scope of top-executives compensation and over compensation measures are also included.And it briefly introduces the research ideas,research methods and plans to solve the main problems.The second part is the literature basis.This part analyzes related literature of executive compensation and over compensation both at home and abroad.It summarizes systematically the research achievements of the compensation contract,management power,the top-executive over compensation and top-executives organizational environment.Combining with the evaluation of existing literature,it finds out the research opportunity and explores the research direction.The theory basis and the theory analysis structure form the third part.This part analyzes the necessity and effectiveness of executive compensation incentive of listed companies from the perspective of the proxy-agent.By using the theory of contract,it analyzes the executive compensation contract incompleteness and the opportunism behavior of top-executives.According to top-executives characteristics,it infers their abilities with information theory.Drawing lessons from the human capital theory,it analyzes the human capital value of the top-executives.With the theory of organizational strategy,it analyzes the influence of organizational environment matching on executive compensation.The measures of the expectation compensation and over compensation for executives constitute the forth part of this paper.This part systematically analyzes the factors that influence the top-executives compensation.By using the HLM,it measures the executive compensation of human capital and organizational environment compensation;according to the human capital of executive compensation and organizational environment compensation,it measures the expectation compensation and excessive compensation of senior executives.The fifth and the sixth chapters analyze the influence factor from different perspective(the perspective of managerial power and the perspective of managerial ability),and clarify whether the nature of management over compensation is the power excessive compensation or capability excessive compensation.The fifth chapter makes an empirical analysis on the economic consequences of top-executives over compensation in a listed company.In addition,the sixth chapter checks the logical relationship between high salary and high performance pay.It proves the rationality of the extra pay according to the incentive effect of over compensation for capability.With the aid of research conclusions,the seventh chapter puts forward reasonable suggestions according to the nature of the over compensation for executives of listed companies in our country.According to the executives of listed companies,the nature of the over compensation capability or power builds appropriate incentive and restraint.The last part summarizes the conclusion,innovation and shortcomings of the research;it also looks to the future research directions.The main research conclusions of the article are as follows:(1)Effective matching of executives,organization and environment affect not only the capability of degree and effect also the company’s performance and thecompany’s long-term development.The evaluation of the top-executive over compensation should analyze the influence factors from three dimensions:individual characteristics,organizational characteristics and environment heterogeneity,and adopt appropriate methods to measure it.(2)The influence factors of listed company executive over compensation have both power factors and capability factors.In listed companies,especially in state-owned enterprises,executives’ positions are closely related to the factors of over compensation.The chairman of a listed company gains the over compensation mainly through his power.The forms of a chairman’s power are duality,background of government work and a position in a shareholder’s company.That is the way to help chairman over compensation of power.If executives of listed companies for the chairman,chairman of over compensation mainly influenced by chairman’s capability.The capability of managing forms mainly includes the social relations of the chairman.Outside the company,chairman of the higher the number of part-time and part-time type,suggests that the more the capability of the chairman accordingly obtain excess compensation levels and the more opportunity;chairman of the higher social part-time type,show that general manager to the demand of the competitive market.The listed companies in order to attract or retain tend to pay competitive salaries.(3)The most important factor of the top-executives compensation is the government working experience,especially the higher Administrative position.Due to the special market environment in our country,official executives become scarce human resources of enterprises.In order to obtain the support of the government,the listed companies are willing to pay official executive compensation which is the important factor for the formation of excessive compensation.The over compensation of the board of the listed company chairman in China reflects the high power,high compensation and bad performance relationship.The chairman of the board of incentive after effect of excess power compensation instead leading to higher agency cost.For the excess power compensation,it’s invalid for a chairman to improve the company’s future performance.The over compensation accrued items significantly positive correlation with the company,cannot motivate the effect shows that the chairman’s over compensation instead leading to higher agency cost.The chairman of China’slisted companies over compensation reflects the high capability to pay high performance relationship,chairman of the ability of over compensation has significant incentive after effect can improve the company’s future performance.(4)The different nature of the over compensation cause significant differences in incentive effect.A chairman’s over compensation in the listed company presents as high power,high compensation and poor achievement.And the over compensation for power has not incentive effect but higher cost.While the over compensation of general manager is more incentive and it can promote the company’s achievement.(5)The over compensation system of listed company executives should be arranged with the reality.That is the nature of the over compensation with appropriate incentives or restriction system.In view of the chairman of the board of listed companies,over compensation should strengthen construction of constraint mechanism,and the capability over compensation of the chairman of listed companies should strengthen the compensation incentive function,fitting for the system to set up incentive mechanism.The research innovations of this article mainly include these following three aspects:Firstly,it is a new research perspective to do research on the over compensation issue of the top-executive from the perspective of the top-executives’ ability.Most of the current research documents analyze the influencing factors of the top-executives’ over compensation issue from the view of the top-executives’ power,and ignore the fact that top-executives’ ability is also an important motivation factor which influences the top-executives’ over compensation issue.The research of this paper makes up for this defect.Secondly,it is a new research method to measure the over compensation issue of the top-executives using the Hierarchical Linear Analysis Method(HLAM).Every top-executive is embedded in the organization,and the compensation issue of the top-executives is an across-level problem essentially.Using the HLMA,this paper selects the reasonable factors which influence the top-executives’ compensation,decomposes the actual compensation of the top-executives step by step,and measures the over compensation of the top-executives reasonably from the aspects of the top-executives,the company’s organization,as well as theenvironment.Using the HLMA to measure the top-executives’ over compensation can avoid the hierarchy fallacy in research methods.Compared with the Core Model,this method to measure the top-executives’ over compensation can make the samples distribute more reasonable,and the kicking of the reasonable factors influencing the top-executives’ compensation will be cleaner.Thirdly,inspecting the influence of the top-executives’ power and top-executives’ ability on the over compensation of the top-executives respectively,and inspecting the economic results of over compensation of power and ability,which shows the new research contents.Taking the two samples,the chairman of the board and the general manager as the research objects,this paper inspects the influence of the top-executives’ power and the top-executives’ ability on the over compensation of the top-executives respectively.The research result shows that both the top-executives’ power and the top-executives’ ability are the important influencing factors of top-executives’ over compensation,and the nature of the top-executives’ compensation,power or ability,mainly depends on the type of position which the top-executive is holding in the company.It is embodied in the fact that the chairman’s over compensation is mainly affected by the power,while the over compensation of the general manager is mostly influenced by the top-executives’ ability.The over compensation of the chairman’s power does not have the incentive function,which is embodied in the logical relationship of high power,high compensation and low performance.However,the over compensation of the general manager’s ability has a significant incentive function,which is embodied in the internal logical relationship of high ability,high compensation and high performance.The deficiencies of this article are as follows:Firstly,the scope of over compensation is not comprehensive.It only selected executives’ annual monetary compensation to replace the executive compensation.In reality,the scope of executive compensation includes monetary compensation,ownership incentive,executive benefits,on-the-job consumption,etc.It could lead to bias research conclusion.Secondly,the selection of top-executives’ ability indicator may be bias.It chose social relations to represent the managerial capability,and the innovation ability to represent the managerial capability in the steady examination.Themanagerial capability is invisibility and can’t be measured directly.In this paper,the social recognition of the managerial capability was measured by the number of part-time jobs external of the company;and whether managerial ability is suitable for the demand of the competitive market was measured by the part-time types.This selection is lack of systematic theoretical analysis,which might cause deficiency in variable selection.