Study On The Correlation Of Senior Executive Compensation And Company Performance

With the development of market economy in China, the modern enterprise ownership and the right of management have been separated. The salary incentive of senior managers who control enterprise's resources has receiving more and more attention. Because of some unequal information between owners and executives, there exist problems such as moral risk and adverse selection. Many scholars concern that how to maintain executives'own interests and make the maximization of enterprise value at the same time in order to realize win-win finally.This paper combines normative analyses and empirical analysis. Firstly, it reviews and analyzes domestic and foreign executive compensation. Then it makes some theory analysis between the executive compensation and company performance from the following aspects:the principal-agent theory, incentive theory and human capital theory. Secondly, it makes descriptive statistics analysis about China's executive compensation for the year 2006-2008. It finds that China's executive compensation has industry and region differences and executives'shareholdings are few. On the basis of selecting 666 listed companies from 2006 to 2008 as a sample, combining the analysis of the affecting factors to executive compensation, the paper puts forward seven hypotheses. The variables include:the senior executive compensation, the company performance, the company scale, the senior managers'shareholding ratio, the degree of ownership balance, the proportion of state ownership, industries and regions. Then it constructs linear multi-regression model, with correlation analysis and multiple regression analysis. Empirical results shows that the company performance and senior executive compensation are significantly positive correlated, but company performance and executives' shareholding are not significant positive correlated. Senior executive compensation and influent factors such as the company performance, the company scale, degree of ownership balance, the proportion of seniors'ownership are positive correlated, while the senior executive compensation are negatively related to the proportion of state ownership.It shows that "reward-performance " contract was formed basically, but there still exists some problems such as unreasonable senior executive compensation structure and incomplete corporate governance structure. According to the empirical results, this paper puts forward suggestions such as follows:establishing a reasonable evaluation mechanism, perfecting the senior executive compensation structure, perfecting senior executive compensation supervision mechanism, improving transparency of senior executive compensation policy.At last, the author analyzes this study's limitations that need future research for improvement.