The Research On The Managers Compensation System Based On Relative Performance Evaluation

With the rapid development of information technology, the surging tide of economic globalization, the establishment of Chinese market economic system and the in-depth reform of state-owned enterprises, managers incentive playes an increasingly important roles. The changed competition environment and market economic system reform make the original performance evaluation system and the compensation incentive system appear many defects, so it is necessary to improve the theory and method of performance evaluation system and compensation incentive system.This paper analyzes from the unique theory angle of the relative performance evaluation and takes it as a foundation to improve the manager's compensation incentive system. First, this paper analyzes the differences and relations between them,puts forward a dynamic relative evaluation system, which connect managers' performance with enterprise's performance and represent the performance from managers'effort by the binary relative evaluation to enterprises performance,and it will provide a solution to the puzzle about the performance evaluation of the manager in the enterprise management; Second, the paper shows that the effect of compensation incentive system will be improved if we use the theory of relative performance evaluation; Third, the paper relates the relative performance of managers with the managers'compensation, simultaneously designs a variable stock option price based on relative performance evaluation which will vary with the relative financial indicators and the securities market and solve the false information problem of the stock option plan in the securities market; At last, this paper analyzes the unique negative influence which caused by relative performance evaluation, and propose some improvement measures and suggestions. In a word, we can conclude that relative performance evaluation provides benefits by deriving information about agents' efforts when the agents face common uncertainty, then allows a principal to establish contracts that impose less risk on the agents while motivating the desired effort, and thus develop superior contracts.