The Effect Of Earnings Quality On Executive Compensation- Performance Sensitivity

Executives of listed company management compensation problems, the academic research focus on it .However, the existing literature in China, most of all focus on the correlation between executive compensation and earnings. From the perspective of earnings quality, few studies had focus on the correlation between executive compensation and earnings correlations. The pay performance-related studies can be explained by effects of executive compensation governance mechanisms. However, not considering the differences in earnings quality and of combining the two becomes really mechanical. Therefore, this approach is inadequate. Then the findings of the assessment practice incentive effects of executive pay lack of rigorous and science. The study discover executive compensation and earnings not only the relationship between earnings quality and will study the relationship between pay performance sensitivity.Management compensation is the performance of the operating results in a certain period of time. In reality, due to the non-observational management effort, earnings become a measure of management effort to determine their pay level. However, earnings have not only the characteristics of information, but also quality features. High-quality earnings information has more relevance and reliability, It is an important basis for the optimal investment decisions and risk aversion, investors and user of information treat it as important pursuit. High-quality earnings information not only can more accurately reflect the efforts of senior level accounting performance indicators but also improve the compensation contract as a measure of the quality of the performance. Therefore, an effective executive compensation contracts should be given high quality information surplus earnings to a higher weight. According to this idea, taking all the listed companies in China from 2005 to 2008 as the research samples, using linear regression method, we study earnings of the quality of listed companies in China how to the impact on executive compensation. Taking into account the earnings quality play a role in the compensation contracts primarily through the implementation of pay performance sensitivity. Therefore, the design of the study, this paper is to examine the earnings quality of the performance sensitivity of executive pay. The study find some results as follow.First, earnings as a measure of business performance indicators, it has a significant impact on the CEO's annual cash compensation, between executive compensation and corporate performance significantly has positive correlation. Second, the low quality of earnings have a significant negative impact on the sensitivity of executive pay .That is to say, the sensitivity performance of executive compensation will decline as the quality of earnings become weak. The study results showed that with the deepening of reform of pay systems, performance of listed companies and basically established a type of pay system, The so-called astronomical executive pay is only an isolated phenomenon, on the whole, China's executive compensation contracts is reasonable and effective.