Research On The Relationship Of Executive Pay And Governance Structure

Executive pay system is an important part of the modern enterprise system. It is very important to design a reasonable remuneration system to incentive or restrain managers, to reduce the risk of the company's agents and the agency cost. During the period of economy reform of our country, how to set up an effective incentive mechanism is crucial for promoting state-owned enterprise's reform. From the 1920s, a large number of scholars have carried out in-depth study for 80 years. The research focused on the determinants of pay, the relationship between executive pay and corporate performance, the forms of executive pay, as well as the criterion for the number of executive pay. The research on the relationship between executive pay and the factors of corporate governance started relatively late. This paper starts from collecting, summarizing, organizing, and analyzing the relevant information at home and abroad, which provides the basis and assumptions for the final empirical research. The research empirically tests the relationship between executive pay and the factors of corporate governance. We expect to provide some useful thought and suggestions for the development of the incentive mechanisms of executives.The main topics of this thesis include: (1) whether executive pay depends on the firm's performance. (2) Whether the factors of corporate governance have an impact on executive pay. (3) Whether the factors of corporate governance have an impact on the pay-for-performance relation.The research discovery from this thesis indicates: (1) the findings of the study show a positive pay–performance relation in China when performance is measured as return on assets. In contrast, stock returns do not affect executive pay. (2) The factors of corporate governance affect executive pay. The percentage of shares owned by the three largest shareholders, HSF, as well as the percentage of shares owned by state is negative and statistically significant in the regressions. Foreign share ownerships, executives share ownerships, the proportion of independent director on the board, the size of board, CEO and chairman duality, as well as the no-pay chairman is negative and statistically significant in the regressions. (3) The factors of corporate governance have an impact on the pay-for-performance relation. Foreign-invested firms have higher pay-for-performance sensitivities. This gives evidence that foreign-invested companies give more weight to a firm's profitability when deciding on executive pay. Though executive pay is lower when the state owns higher percentage of share, the state also will help constrain abuses that lead to'excessive'executive pay and encourage the use of performance-related compensation schemes. When executives own share, they are more likely to encourage the use of performance-related compensation schemes. Similarly, a lot of independent directors, large boards encourage firms to adopt pay for performance schemes. Particularly, in state-controlled companies, CEO and chairman duality will not only lead to excessive executive pay, but also in such a case, they will tend to avoid the performance-related pay.