Legal Construction On The Company's Executive Compensation

Under the circumstance of separation of ownership and control of the corporation, the management acts as the agent of the owners of the corporation.The management with the control of the corporation may maximize its own interest at the cost of shareholders' wealth. Executive compensation has been considered as a tool to lower the agency cost and align the interests of the management and shareholders. However, in practice,executive compensation itself becomes a classic agency problem .Executive compensation which is soaring not only can not represent the contribution to the company, but also there may even be declining company performance and rising executive compensation, with the compensation separation from the performance,we must reflect on the current compensation legal system.Article is divided into three parts:The part one is analyzing the value of executive compensation which encourages executives to achieve maximum benefits for shareholders , but executive compensation is based on related party transactions,so the law involved in regulation of compensation is necessary, while executive compensation as the company autonomy,legal has its limitations,the regulations aim to reduce agency costs, encourage executives to work for the corporate interests, making corporate interests and self-interest balance.The part two is about the United States executive compensation legal system. As the most developed countries, U.S. was concerned about the executive compensation from 30 years of the 20th century, the regulation of executive compensation is mainly reflected in the SEC disclosure of compensation information , tax law and giving shareholders unbinding vote and explore the remuneration of judicial trial. By analynzing the United States 's compensation legal system,we found that with the law constantly improving in the United States, the compensation is not satisfactory ,the most important cause is the legal system cannot coordinate .While the SEC strengthen the disclosure of compensation information, reducing the cost of the shareholders' supervision,but because shareholders do not have decision making power in advance,and during judicial review business judgment rule will protect board's decision,making the system not ideal.The part three, based on the realities of our country, proposing the legal system of executive compensation. Mainly including three aspects: First, learning from the United States compensation information disclosure system, improving the disclosure regime in China; Second, giving shareholders an effective voice, mainly talking about the solutions of dominance shareholders problems,the essence is making corporate governance perfect; Third, through the judicial system to balance the powers and responsibilities, based on the United States and Australia model ,strengthen the judicial review of compensation issues.