Research On The Executive Compensation Incentive Effect Of The Private Public Enterprises From The External Perspective

Executive compensation incentive is the cornerstone of corporate governance study.Executive talent is an important human capital,the key to the success of the company.In modern enterprises,how to motivate executives to fully utilize their management skills is a key issue.The Chinese professional manager market has experienced rapid development in the past few decades,however,it has also exposed a series of problems.For example,performance and compensation are “soft” linked,negative pay performance sensitivity,and sky-high compensation often occurs.These facts reveal the failure of executive compensation incentives.The existing research mainly analyzes the executive compensation incentive based on the traditional principal-agent framework,while ignored the influence of external factors,such as economic policies,institutions and industry factors,which is still worth exploring.Based on the original theoretical analysis framework,this paper constructs theoretical models to discuss the impact of financial constraints,peer effects and anticorruption on executive compensation incentives.In the theoretical research section,this paper expands the investment-cash flow sensitivity model of Kaplan and Zingales,the game model of Hayes and Schaefer,the model of Holmstrom and Milgrom as well as the model of Marino and Zabojnik to embeded the financial constrains,peer effects as well as anti-corruption in the executives' compensation incentive model.Respect to the empirical research,this paper takes the private enterprises of listed companies to empirically test the influence of the above external factors on executives' compensation incentive effects.The main conclusions are as follows:(1)The impact of financial constraints on executive compensation incentives.First,for executives including CEOs,CFOs and Chairmans,financial constraints will significantly increase their compensation levels,while financial constraints have weaker effect on the compensation of board secretary.Second,for CEOs and board secretarys,financial constraints will significantly improve their compensation incentive effects.Furthermore,the CEOs and board secretarys' compensation incentives effects are more significantly affected by financial constraints compared with others.Third,compared with indirect IPO privte listed companies,financial constraints have more significant impact on the compensation levels and compensation incentive effects of the executives among direct IPO listed companies.Fourth,compared with the listed private companies with separate rights,the financial constraints have more significant impact on the salary levels and the incentive effects of the executives in firms with the unity of rights.(2)The impact of the compensation peer effect on executive compensation incentives.First,both the industry peer effect and the regional peer effect significantly increase the executive compensation level.However,for different types of executives,the mechanisms are different.Specifically,the compensation growth for the CEOs and the Chairmans are mainly driven by the highest salary level of the industry(region)peer group.The compensation growth for the CFOs mainly depends on the minimum salary level of the industry(region)peer group.The salary growth for board secretarys are mainly affected by the average salary level of the peer group in the industry(region).Second,the compensation peer effect will significantly affect the executive compensation performance sensitivity,that is to say,the compensation incentive effect.But there are differences among different types of executive.Specifically,for the CEO and board secretary,the increased compensation brought by the peer effect will significantly improve the compensation incentive effect.For the Chairmans,the increasd compensation brought by the peer effect does not improve the compensation incentive effect.For the CFOs,the increased compensation brought by the peer effect weakens the incentive effects.(3)The impact of anti-corruption policies on executive compensation incentives.First,the anti-corruption significantly reduces executives' perks.Compared with low-corrupt areas,the executives in highly-corrupt areas have reduced their perks after the implementation of the anti-corruption policies.The sub-sample results show that,for private manufacturing enterprises,anti-corruption has more significant effect on the reduction of perks than other industries.Second,there exists threshold effect.Specifically,the relation between anti-corruption and compensation incentive effects shows an inverse “N”shape.Third,up to now,the anti-corruption degree has been in the second stage of the threshold effect,which significantly improves the executive compensation incentive effect.Compared with the Chairmans and CFOs,anti-corruption has more significant effect on the CEOs and the board secretarys.The suggestions are as follows.First of all,the government should continue to implement the "simplified government decentralization" reform to reduce the rent-seeking activities.Thus,encourage executives to allocate resources to the innovative and productive activities which will benefit the company's long-term development.In addition,for government regulatory authorities,as the appropriate financial constraints can optimize the effect of executive compensation incentives,the government should formulate financial support policies,choosing the best choices to help enterprises.Second,the securities laws should clearly stipulate the functions and powers of the senior executives.In particular,the independence of the board of sectratrys should be enhanced.Third,for companies,the optimal executive compensation level should be determined based on investment-cash flow sensitivity to avoid insufficient incentives as well as excessive incentives.In addition,the compensation contract should link the executives' compensation with the investment income,and determine the executive's salary income flow according to the expected investment income at each stage.Such compensation contract can effectively avoid the human manipulation and achieve the effect of long-term incentives.In terms of information disclosure,the company's executive compensation policy should be disclosed in detail in the annual report.On the one hand,it is beneficial for the supervision and management of the regulatory authorities.On the other hand,it is also conducive to improve the transparency of executive compensation information thus alleviating public doubts about executive compensation.This study analyzes the mechanism of executive compensation incentives from multiple external perspectives,therefore extending the existing literature on executive compensation research.This study not only provides pricing ideas for the board of directors to make executive compensation contracts,but also provides a reference for the regulatory authorities to evaluate corporate governance.