Research On The Relationship Of Executives Salary Structure And Enterprise Value

People always are concerned about executive compensation, especially in the economic crisis it still raises, which focus attention on it. National governments want to limit the high level of executive compensation to slow the speed of economic recession. Many people think that this is the general trend, but opponents argue that salary restriction cannot solve the problem of soaring executive pay. Even maybe it will lead to a lot of moral hazard behavior, thus increase the agency costs, end with opposite result. This paper makes empirical analysis of the relationship between salary structure for executives and the enterprise value, and studies how every component of compensation promotes the enterprise value, and indirectly answers the question whether we should limit executive pay.First, this paper analyses the research status of executive compensation , in order to draw forth the research contents of the paper ; then introduces the relevant theories of salary structure and enterprise value to lay theoretical basis for the research; again points out the problems of salary structure in China, and analyses how salary structure impact on the enterprise value, also discusses the factors in salary structure which affect the value ; finally, makes empirical analysis of the relationship between salary structure of senior executives and enterprise value. The study of salary structure's impaction on the business value in this article, mainly divided into two sections: one part is the equity compensation's impaction on enterprise value, mainly uses the number of senior administrators' ownership as a variable; anther part is about the cash compensation's impaction on enterprise value, mainly uses the average annual salary of executives to show. This paper uses stock price as a proxy variable for corporate value, based on the generally acknowledged fact that China's stock market has reached the weak form efficiency. The research hypothesis content of this article is that enterprise value is correlated with average salary of executive, the proportion of stipendiary, stock holding ratio, executives'average stock holding ratio and firm size. The empirical research showed that there is a positive correlation between enterprise value and average salary of executive, confirmed that the cash compensation stimulate the enterprise value; there was a negative correlation between the proportion of stipendiary and enterprise value , this may explain why executives'"zero pay" phenomenon becomes common in recent years ; stock holding ratio and executives'average stock holding ratio have positive correlation with enterprise value; from the size of regression coefficient we can find that the relationship between compensation and enterprise value is stronger in the corporations that executives hold stock than non-holding corporations, this shows that the equity incentive mode can make the executives creating more value; enterprise value and the scale have significant negative correlation.