Legal Regulation Over Senior Corporate Executive's Compensation In State-owned Listed Companies

Executives'large compensation of listed companies is not only one of the hardest nut in the corporate governance problems, but also challenging the fairness and justice of social distribution and investor's psychological limits. Especially under the cloud of the global financial crisis which is triggered by the U.S. subprime loans, with the economic depression, corporate bankruptcies, increased unemployment, reduced income, asset depreciation and Domino Effects, the issue of high executive pay has been becoming a target of public criticism, including government officials, experts, scholars, ordinary investors, and common people this community. Because it is generally believed that the current executive compensation system induced executives to run after short-term benefits at the expense of enterprise's long-term development. And it is in fact this motivation of short-term interests which catalyzed the outbreak of the financial crisis.The cruxor heart of the matter is whether it is just rotten apples or rotten apple barrels? Studies have shown that the issue of executive remuneration in the last analysis is the entire corporate governance system go wrong, this is not just a few rotten apples, but the whole barrel rotten. The next problem is what role legislation could or should play in regulating executive compensation? Because the issue of executive compensation has always been regarded as a corporate governance issue, belonging to the family business. But because of the failure of the company's self-government, we must introduce an external mechanism of regulation. However it still should be a market-based regulatory mechanism which is supplemented by laws'appropriate intervention. Under the principle and regulatory framework established by law, wo have to give full play to the role of markets and guide executive pay onto the track of sound development, but the prerequisite is to built up a sound and developed professional managers markets, capital market and product market.This article is actually based on the above considerations, divided into three parts to make a more comprehensive and systematic exposition on the issue of senior executives'compensation in state-owned listed companies. And I mainly uses the method of comparative analysis to carried out a more in-depth discussion and study on specific issues.Part I of this article is mainly to make the legal definition and classification for state-owned enterprises and state-owned assets, as well as making the legal definition for executives and their remuneration from the connotation and extension. Meanwhile, it also analysize the values and functions of legal regulation on executive pay system in the term of jurisprudence.Part II of this article made a more comprehensive and systematic analysis to clarify the specific methods used in practice and problems of regulation on executive remuneration. My analysis focused on the regulation practice of American and European executives'compensation, where we can learn good experience from. Additionally I illustrated the regulation progress of state-owned enterprises'executive compensation in Belgium and Eastern European countries. What's more, I made a more comprehensive analysis of the existing problems and overview of legal regulation on executive compensation in China.This part focuses on European, American and other developed countries'executive pay model-option incentive mechanism; the pay decision-making mechanism-"Board centrism"; the information disclosure mechanism; taxation-the embarrassment emerging from the"Binary Paradox"and the"Endowment Effect"; judicial relief-the shareholder derivative litigation which is the last firewall for company's interests; judicial review and recovery mechanisms, supervision mechanisms-shareholder intendance and supervision of the Remuneration Committee.In addition, this part made a more comprehensive and systematic in-depth analysis of China's existing problems of executive compensation and their root causes, including too large and high-rocketing executive compensation; great income gap between executives and ordinary employees; sharp and significant differences between different industries, regions and individuals; unreasonable structure; general deficiency of long-term incentive or weakly associated with the company's operating performance; malfunction of decision-making and supervision mechanisms; widespread insider-control system; serious procedural defects; lack of full transparency in information disclosure mechanism; too much government's administrative regulations; market-determination mechanism has not yet been truly established; serious official standard in the development of remuneration; interest community is co-existing within the corporation to push up their pay. It also elaborates an overview of the legal regulation in China.Based on the studies of different countries'practical experience and China's specific issues by Part II, Part III made a systematic in-depth analysis of China's status quo of legal regulation, as well as following issues, including the"due to the dominance"phenomena in China's state-owned listed companies; the personification vacancy of the state-owned property; the"amphibious"colors (not only official but also businessman) of executives in state-owned enterprises; the puppet regime of the board; vase-oriented supervisors; independent directors have none de facto independency;"internal control"system and"strong government control"system; agent chain is too long; asymmetric information in the decision-making process, etc.Furthermore, this part came to put forward countermeasures against these problems and came up with legislative proposals for improvements of the ranges of executives and their compensations; decision-making mechanism of executive remuneration; executives'obligations and liabilities; tax regulation; information disclosure rules, supervision mechanism; judicial review and recovery mechanisms to solve these problems in state-owned listed companies. Many of these countermeasures and solutions are author's bold assumptions.In the scope of executives and their pay, I advocated that it must expand the range of company executives and their compensation which need to be regulated. Moreover, it also have to improve the long-term incentives mechanism.To the issue of pay decision-making mechanism, I believe that we should fully introduce the market-determination mechanism to select prominent executives; we should strengthen the authority of the supervisory board and increase supervisor's independence; we should establish an independent compensation committee with whose members are supervisors and independent directors; we should reinforce the independence and professionalism of the remuneration committee to ensure that independent directors are truly professional and independent; we should enlarge the voice of independent directors and reinforce their sense of responsibility in order to avoid internal controls and executives determine their remunerations by themselves; we should consolidate the decisive role of the shareholders conference on determining executive pay, especially we have to amplify the sound of small and medium shareholders; we also should enhance shareholders'supervision over the determining process of executive compensation to ensure that procedures are fair.To the issue of executive's duties and legal responsibilities, I argue that we must define the obligations and responsibilities of independent directors; we should introduce an independent supervisor system, and clearly specify their responsibilities and obligations; we should step up to unveil detailed implementing regulations associated with company law in order to further clarify the obligations and responsibilities of executives, and what punishment will be suffered for their violation of the provisions.To the issue of taxation regulation, my point is that we can't hold high hopes for tax legislation; we must improve our tax law system to prevent executives from exploiting the advantage of policy loopholes at root; we must pay more attention to the role taxation law plays on stock option incentive mechanism.To the issue of information disclosure rules, I maintain that we should be devoted to the development of uniform and mandatory information disclosure rules of executive compensation; its basic principle should be sufficient disclosure, detailed disclosure and full disclosure; we should strengthen the enforcement of disclosure, expand the scope of disclosure and enhance the effectiveness of the disclosure information; we should use"focus-on disclosure"and"comparison disclosure"as its basic models using simple language, visual charts, to enhance shareholders'awareness and sensitivity to disclosure contents; we should construct a sound legal obligation system for illegal disclosure, taking civil liabilities as its foundation while administrative and criminal liabilities as its supplement.To the issue of supervision mechanism which can be divided into internal supervision and external supervision, I propose that we should improve shareholders'monitoring mechanism; reinforce the supervision from board of supervisors; give full play to employee-directors, staff supervisors and independent directors in surpervision; consolidate the supervision from the SASAC, the CSRC and the CIRC; establish and improve the market constraints and supervision mechanisms.To the issue of judicial review, my understanding is appropriate intervention by judiciary. Analysis shows the necessity of judicial intervention, since the market mechanism is not perfect, corporate governance mechanisms do not work; legislators are in an awkward position, administrative means are unreasonable; the real social fairness and justice are people's desire. Also it pointed out that the principle of judicial intervention comprises the rationalization principle and the statutory principles.To the issue of the recovery mechanism, it can be divided into two kinds of situations. One is the China Securities Regulatory Commission exercise the recovery right when company is normally operating; while the other is the administrator apply to people's court for enforcement of the recovery right when company is declared bankruptcy. In the latter case, I hold that we should expand the scope of the main body who has to return their illegal proceeds; we should clear and definite the criteria for judging whether it is non-regular income or not; the number of the illegitimate income shall be determined by judge; it also should be explicitly stipulated that the executives'non-regular income got in three-year tenure of office must be returned to the company.In a word, to the issue of executive compensation, the law should neither neglect, nor unduely intervene, or even forced to set limits.The general guiding principle is to build and perfect the mechanism of market regulation, at the same time, the law should moderately intervene in the hope of improving the corporate governance structure and protecting the interests of corporations and shareholders, so that China's socialist market economy will be booming, thriving and flourishing.