The Research Of Executive Incentive Mechanism Based On Nontradable Share Reform

Nontradable share system is the background of executive incentive mechanism. Based on the change of corporate governance caused by the nontradable share reform and the change's following fundamental effect to executive incentive mechanism, referring to the relative theories of organization behavior science, we provide a theoretical analysis framework to study change of executive incentive mechanism before and after nontradable share reform. This framework is constituted by management process incentive including four links and non-management process incentive around which control right is the kernel.Before the reform ,the state-owned shares and corporate shares amount to the most part of all shares, however they can not allowed to circulate. Government as the agency of large shareholder can not find a proper and powerful methods to supervise manager who generally appointed by itself ,as a result ,executive get such a powerful control right that he can easily handle the unshakable control right to commit graft and corruption. At the same time, because most shares are nontradable, capital market and executive market are immature. All of this make the corporate governance becoming a very weak incentive to executives.This situation lead to the serious deficiency in every four link of management process incentive: to the executive administrative object is more important than that of enterprise; the executive performance is evaluated by the administration other than the immature market; the executive's reward is not relevant to their performance evaluation; the short-term excitation is not correspondent to the long run development of enterprise. As to the non-management process incentive, the unshakable control right which easily bring out graft and corruption can be a very important incentive to make executive deviate from the benefit of enterprise and stockholders.After the nontradable shares reform, It is expected that high concentrated share structure will face fundamental transforming ,that as a result, executives will not be appointed and the capital market and executive market will become mature step by step. On the other hand, every four links in management process incentive will get better to some extent. For example, the incentive arising from the administration is not so important now.the executive's control right is not so absolute and inalienable, so the management process incentive lose its powerful attraction . In general ,after the reform, the executive incentive mechanism will do more good to the development of enterprise. But there are still many obvious defect in executive incentive mechanism after reform:there are still possibility to escape the supervisory of shareholders to get illegal profit; the performance and reward are still interrelated weakly. So we must dedicate to completing a perfect indispensable director system, developing institutional investor, inspiring the executive's creative spirit and so on.