Empirical Research On Correlation Between Top-management Compensation And Performance In Listed Companies

Top-management Compensation of listed companies has been a problem for a long time, it is always a hot issues in the academic and business circle. Because of the international financial crisis, the performance in many listed companies is gloomy in 2008, export demand reduced and domestic investment demand decreased significantly. Although the performance of listed companies in 2009 rebounded a lot, China's economy started to recover, but the financial crisis is still impacting China's economy, many companies are still facing with great environmental risks. In this environment, should we improve the top-management compensation in listed companies, and strengthen the link between the top-management compensation and company performance, or reduce the top-management compensation and weaken the link between the top-management compensation and company performance, which is an issue worth exploring. Many listed companies adopt some means to reduce or limit the top-management compensation, some executives choose abandoning the year-end bonuses actively or passively, they even choose receiving "zero pay" in order to ride out the storm with the business and employees. But there are also many senior executives received high compensation, the performance which is against market trends triggers a great deal of controversy. Therefore, it is necessary to research the correlation between the top-management compensation and company performance under the current environment. This article will adopt correlation analysis and regression analysis to research the correlation between the top-management compensation and company performance, as well as the main factors which affect this correlation, provide some guidance for the company to develop a reasonable system of executive compensation, which is helpful to motivate executives and ensure the realization of the value of human capital.This article describes theoretical basis about the correlation between top-management compensation and company performance, including the principal-agent theory, incentive theory, managerialism theory and beyond property-right argument. Then the article reviews the research results of domestic and foreign scholars on their correlation and its influencing factors, and identified the main impact factors, including company size, stock concentration, the company's growth, debt risks, industry competition degree, the level of development in the districts and so on, and proposed a series of assumptions.Then, selecting the Shanghai Stock Exchange A-share listed companies empirical data in 2007-2008, this article researched the correlation between the top-management compensation and company performance,and using descriptive statistical analysis, correlation analysis and regression analysis methods, all statistical analysis are completed with EXCEL2003 and SPSS11.5.Through descriptive statistical analysis and empirical analysis, we come to the following conclusions:First, the performance of listed companies is decreasing in 2008,while the total remuneration of senior executives is increasing. It indicates that due to the financial crisis, corporate economic growth is slowing down, demand for exports and domestic investment demand reduced significantly, resulting in poor performance in 2008. From the point of correlation, there is a significant positive correlation between top-management compensation and company performance.Second, whether from the whole or considering company size, ownership concentration, debt risk, industry competition degree, the level of development in the districts, the relevance between top-management compensation and company performance in 2008 is lower than in 2007. As the environmental uncertainty increases, corporate performance will show a larger uncertainty, in order to prevent managers to bear excessive risk, many companies weaken the link between top-management compensation and company performance.Third, executive holdings are decreasing year by year, and the shareholding ratio is low, "zero-holding" phenomenon is seriously. From the point of relevance, the shareholding ratio is not relevant with corporate performance. The main reason is that equities incentives for executives is not comprehensive in listed companies, it is only a trial implementation in some companies. The shareholding ratio of senior executives is low, many executives are just holding shares symbolic, equities incentives for senior executives did not play a significant role.Fourth, take company size into consideration, we found the larger the company size, the stronger the correlation between top-management compensation and company performance. It indicates that large companies have a high absolute profits, high top-management compensation is just a small proportion for the high profit, leading that the shareholders relax supervision on top-management compensation.Fifth, take ownership concentration into consideration, we found when we use EPS as a corporate performance measures, the higher the ownership concentration, the stronger the correlation between top-management compensation and company performance. It notes that the higher the ownership concentration, the major shareholder and business will be linked more closely. Motivated by pursuing self-interest maximization, the largest shareholder is bound to design a more reasonable and scientific incentive mechanism, by increasing top-management compensation to improve their enthusiasm to work.Sixth, take company's growth into consideration, we found when the growth is low (less than 30%), there is a prominent correlation between top-management compensation and company performance. While the growth is good, the correlation between top-management compensation and company performance is not significant. The reason may be that when the company has a good growth, the company's performance is affected greatly by its own product development or the support of national policies, rather than senior manager's effort, The company's performance can't reflect the executive's level of effort, even if there is no positive incentives to promote executives to work hard, the company's performance will be raised.Seventh, take the debt risk of corporate into consideration, we found when the asset-liability ratio is below 50%, the top-management compensation is relevant significantly with company performance, While the asset-liability ratio is above 70%, there is no significant correlation between top-management compensation and company performance. It shows that the debt risk of listed company is too high, using performance incentives couldn't encourage executives to create more value for the enterprise. Eighth, take the industry competition degree into consideration, we found in a highly competitive industry, the top-management compensation is relevant with company performance in the 0.01 significance level, while in the lowly competitive industry, there is no significant correlation between top-management compensation and company performance. The reason may be that in the monopolistic enterprises which are less competitive, the enterprise's performance was mainly affected by market demands. When the demand is stable, corporate performance is stable, even though increase the operator's remuneration in big extent, company performance may just have a small change.Ninth, take the level of development in the districts into consideration, we found that the more developed the economies, the smaller the correlation between top-management compensation and company performance, the less developed the economies, the stronger the correlation between top-management compensation and company performance. The reason may be that in the areas where economy is relatively backward, available resources are fewer, and there are few opportunities to expand the company's size or business. Only by relating the senior manager's pay with company performance to arouse their enthusiasm, so that company performance may be raised.According to the conclusion above, we put forward some executive compensation policies base on present environment: First, high salaries generally means a high company performance, in order to achieve full incentive efforts ,it requires to enhance matching score between top-management compensation and company performance. Second, implement the diversification of the compensation structure, and optimize the incentive contract scheme. Raising the percentage of long-term incentive, and taking measures such as equities incentive and improving the shareholding ratio of executives, so that make compensation structure more diversify and rationalizing, Enable enterprises to attract and retain talents, at the same time, mitigate the company's current cost pressures adequately. Third, consider multifarious factor, and assess executive pay levels comprehensively. When we consider top-management compensation fluctuating with company performance, we can not make a mechanical operation simply, we should remove performance fluctuation due to national policies and monopolies as far as possible. At the same time, we should also consider other factors which influent top-management compensation, so that the compensation policy will play a role in encouraging.