The Study Of Uncertainty And Monitoring By The Board Of Directors On The Executive Compensation Incentives

With the further implementing of the state-owned enterprise reform, the executive has become more and more significant in business operations. From 1990s, issues with respect to the executive compensation have aroused national-wide concerns. Specifically, the topic how to fully bring executive function into playing through the effective incentive and restriction mechanism has been being researched by many scholars. Along with the development of listed companies in the last decade, corporate governance mechanism has been gradually established and consummated. But there is still much bewilderment in the constitution of the corporate governance mechanism especially the executive incentive mechanism. For example, the theory base of executive incentive, which are the main influence factors in the design of executive compensation system, are there differences about outcome-contingent compensation schemes in various industries. This thesis bases on theses questions and we hope this thesis can expand research theory in a certain degree.With respect to influencing factors on effectiveness of executives'incentive compensation system, there are two environmental factors: external environmental uncertainty and internal monitoring ability of the board of directors. Firstly, based on the research of previous relative theories, this thesis explains, through theory integration, why most of companies utilize outstanding achievement based compensation incentives rather than executive's conducts based. Secondly, by empirical analyzing the samples of Chinese listed companies, this thesis explains the problems related to executive compensation incentives from two perspectives: uncertainty and monitoring by the board of directors. To some extent, this thesis leads to the notion that environmental uncertainty does amend the relationship between monitoring of the board of directors and executive compensation incentives. In our empirical conclusion, due to the nature of risk elusion, people who work in high-dynamic industries will prefer to be rewarded in fixed way. Thus, pay-performance sensitivity of such industries is lower than that of low-dynamic industries. There are essential meanings for this conclusion. In current period of China which mainly characterized by environmental dynamics, uncertainty has become one of the most important factors which affect the effectiveness of executive compensation incentives. When designing executive compensation plans, constitutors should take those environmental factors into their account, and avoid simply copying from other...