Research On Performance Of Listed Company And Incentive To Senior Executives

The most remarkable character of modern company system is that ownership separates from management. There is a "principal-agent" relationship between owners and operators. Because of asymmetric information in the market, the owner of a company will face to moral risk and reverse choice of the management. The agency cost exists. According to agency theory, agency cost will decrease if reward policies are connected with company's performance. At the same time, the reward policies can motivate executives to increase wealth of shareholder. In western countries, it is a common way to connect the reward policies with company's performance when to solve agency problem. In the twenties of the 20th century, incentive theory came into being on the basis of economics, psychology, and human resources management. The theory began to be known and to be applied in company's system gradually.The goal of company reform in our country is to build modern company system with clear ownership and management, with division between politics and companies. There is a series of reforms on the personal income distribution system. The goal is to combine the income distribution system with incentive system and performance appraisal system. One of the keys of setting up modern company system is to build up the most efficient income distribution system and to motivate management fully.At present, the salary system for senior executives of listed company is mainly annual salary system in our country. There are two kinds according to the way of paying: first, the basic annual pay that grants monthly; second, the pay based on companys performance, it is set up for encouraging executives to work hard and to improve performance of companys. It includes cash, equity option and bonus, etc. Because of the restriction in gathering data, the thesis researches on annual pay and share-holding in particular (relevant data are disclosed in financial reports of listed company). The author wants to find the relation between annual pay, share holding and companys performance, to find the validity of incentive system to senior executives.From the twenties of the 20th century, the foreign scholar begins to explain and prove theoretically on the relation between senior executives incentive and performance of listed companies. Since the sixties, positive research method is used mostly. There are several respects. (1) The relation between the salary of senior executives and company's performance. (2) Influent factor for the salary of senior executives. (3) The relation between the salary structure of senior executives and company's performance. (4) The form of salary of senior executives senior, the effect of incentive.The research on the relation between senior executive's incentive and performance of listed companies is a new field in China. The domestic research has the following character. 1. The result of research in the same research field is far from each other, because the data are selected under different principle. 2. There is more static research and less dynamic research. 3. Most research have small sample, so, we will pay attention to the representation of the selected data to all listed companies. 4. The continuous research is less. Most research select data for the recent year. We should pay attention to the stability of results. 5. Most scholars don't tell the principal of selecting indicator. It is obvious performance index is it have getting wanton to choose. Because most performance indicators may not be relative, we should study more about the; stability of the result.In the course of gathering data, the author uses "JuLing stock analytical system 1.1", "China stock market & accounting research database (2006 editions)", "achievement appraisal report of Chinese listed company of 2006", and the data on: Chineses Securities Regulatory Commission website and "China Security News" , "Shanghai Security News". The initial data are from listed companies, which disclosed financial reports before April 30, 2007. 1391 listed companies are included. In order to guarantee the validity of the data, to induce the interference factor, the author has selected the primitive sample according to a certain standard. The principal is as following: 1 .The data from financial listed companies are not included in the sample because of its specific characteristics. 2. ST, PT companies are not included, because extreme data will have negative impact on the research. 3. The financial reports have disclosed annual salary and shareholding of senior executives. According to above principals, the author gathers 784 samples, among them, 340 are from Shenzhen stock market, and 444 are from Shanghai stock market.Using EViews3.1 software, the positive research can draw the following conclusion: 1.The area and the industry affect the encouragement level to senior executive. 2. There is a positive relation between encouragement to senior executives and the performance of the listed company. This proves that our country has already set up incentive-restriction mechanism, furthermore, our country make a progress in organizational structure. 3. There is a positive relation between the scale of a company and its performance. 4. There is a positive relation between shareholder concentration of a company and its performance. (It is different from most domestic scholars' research conclusion. Most scholars think organizational structure will have defects in company with high shareholder concentration, which will have negative impact on company's performance. As for why it has this kind of difference, it will be the field in which the author should study further). 5. There is a positive relation between company's financial situation and its performance.Drawing on salary system of America, Germany and Japan, the author gives the following advice: 1. Change the single salary structure, implement the diversity of salary structure, and pay attention to long incentive plan in salary structure. 2. Strengthen the disclosure of organizational structure, especially the disclosure of salary system. The abundant disclosure helps shareholder to know the financial situation of the company and performance appraise to senior executives, it helps the outside shareholder to, supervise the behavior of senior executives better. 3. Set up salary committee to manage salary effectively. 4. Improve the disparity of the salary properly. The company should carry on a reform about organizational structure.