China's SOE Top Manager Compensation And Firm Performance: An Empirical Study

With the development of knowledge economy, the talents have become the key of the competition among firms. As the core decision-making members, the top managers play a crucial role in the development of firms. The excellent top managers have become the target of fierce rivalry among firms, and the problem of top manager compensation has become the focus of theorists and entrepreneurs. The basic principle of compensation is linking to firm performance. In China's national economy, the state-owned firms have been being dominant, and their multi-level characteristic with principal-agent of property relations has been made the problem of top manager compensation more prominent.On the base of reviewing the empirical research on the relationship between the top manager cpmpensation and firm performance home and abroad, the paper studies the relationship between the top manager compensation and firm performance of China's state-owned firms, using statistical description analysis and hypothesis testing analysis.First, the paper explain modern enterprise theory, principal-agent theory and motivational theory, then analyze and comment managers'compensation mechanism of domestic and international enterprises. Most scholars got the conclusion of that there was a significant positive relation between firm performance and top manager compensation through empirical studies. These have done theory foreshadowing for the ensuing empirical studies.Then, based on the literature review, this paper put forward five research hypotheses about the relationships of the firm performance and top manager compensation and four control variables. These hypotheses are: there was a significant positive relation between firm performance and top-three manager annual pay or ratio of shares top managers; the scales of state-owned firms are larger, the impacts of top manager compensation on firm performance are more significant; the economy of the areas is more developed, the impacts of top manager compensation on firm performance are more significant; the industry is more competitive, the impacts of top manager compensation on firm performance are more significant; the rate of liability is smaller, the impacts of top manager compensation on firm performance are more significant.Next is empirical part, 312 state-owned and state-controlled listed firms are selected as the sample. First, thearticle inspects the top manager compensation status using the descriptive method; then, it proposes the hypotheses and tests the relationship between the top manager compensation and firm performance using linear regression to inspect the validity of top manager compensation. It studies these from the whole, and by the scale, by area, by industry or by the rate of liabilities. At last, the main conclusions of the research are gained:(1)Overall, the level of the top-three executive annual pay is high, and has a significantly positive relationship. By scale, it is closely related to the fum scale, but, only has a significant effect on firm performance in large firms. By area, it is significantly positive to the degree of economy development, but the effect on firm performance is negative. By industry, it has a significant effect on firm performance in resource-based industry and competition industry. By the rate of liability, it affects firm performance when the rate is more than 20% and not more than 50%.(2)The phenomenon of "zero shares" is serious. The ratio of shares top executives is very low, and it isn't significantly correlative to firm performance. The differences among individuals are very obvious. It doesn't affect firm performance significantly by scale, by area or by the ratio of liability. Only in resource-based industry, it has a significant effect on firm performance, while the relationship is negative.Through the above research, the follows are mainly known about: the status of the top manager compensation (annual pay and ratio of shares-owned) in China's state-owned firms, the relationship between the top executive incentive and firm performance, and the effect intensity of the top manager compensation on firm performance. So, the compensation suggestion aimed to the top manager are put forward: increasing the annual pay to contend with the level of CEO in foreign firms; improving the proportion of annual bonus in the annual pay, to increase the incentive for short-term performance; raising the ratio of incentive shares-owned validly, to play its own effect; when to design compensation mechanism of top manager, it should consider other feature factors of enterprises,such as scale, area, industry, etc, and adopt more overall indices to assess firm performance and so on.Innovation and significance of this paper is as follows:the study is located in the state-owned enterprises. It has very important practical and theoretical significance in China's state-owned enterprises; previous researches mostly chose accounting profit or market pricing indices to assess firm permformance, and this paper consider the prifitability and growth indices to make a composite score of firm performance through principal components factor analysis; introduce the control variables, use principal components factor analysis to assess firm performance, and analyse the factors of top manager compensation and the intensities of the relationship from empirical study; then come up the compensation suggestion to the top manager of state-owned enterprises.