A Study Of Independent Directors' Incentives In Chinese Public Companies

As an effective method to improve and perfect corporate governance structure, the independent director institution has been paid more and more attention to. 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. By means of normal and empirical methods, this thesis analyzes the present situation systematically and thoroughly. With the sample of 146 Chinese public companies, which had employed independent directors by the end of 2001 and disclosed their pay in the annual report, the possible factors influencing independent directors' pay, including company size, risk, business diversity, other senior management remuneration, industry type and area difference, are studied by multiple regression. It demonstrates that such three factors as other senior management remuneration, company size and area difference have significant influence on it. Moreover, relative suggestions are put forward.This thesis includes five sections. In the first section, the importance and necessities of this research are explained, as well as the introduction of related research domestically and overseas. In the second section, regulations and practice of independent directors' incentive in several main countries are introduced and compared. Then in the third section, demonstrates the role of the reputation institution and monetary incentive motivating independent directors to work hard in the aspect of economics, analyzes the relationship of their incentive extent and independence, and concludes that independent directors should get rather pay especially in the lack of reputation institution in China. The fourth section is the core of this thesis, and makes an empirical analysis of the factors influencing independent directors' pay in Chinese public companies. Finally, a remuneration package of independent directors is designed (i.e. fixed pay plus performance-related pay plus stock option), and some suggestions are given.