An Empirical Study On Top Management Cash Compensation Incentive Schemes Of China's Listed Companies

Some listed companies of China began to implement and disclose top management cash compensation incentive schemes since 2002, which is an important progress of top management compensation systems. This paper examines the impact of these top management cash compensation incentive schemes on the compensation setting and their incentive effects.This paper analyzes the shortcoming of indirect demonstration of the empirical study in existing literature. Under the hypothesis that top management have incentive to improve corporate performance if their compensations are highly related to corporate performance, the incentive effect of top management compensation is indirectly tested through testing the sensitivity between top management compensations and corporate performance. However, whether top management compensation incentive can really improve corporate performance is not proven. Differently, this paper is to directly prove the incentive effect of top management cash compensation incentive schemes of China's listed companies.Empirical results suggest that: (1) companies that disclose top management cash compensation incentive schemes have significant higher top management compensation and higher compensation performance sensitivity; (2) private companies and companies with higher largest shareholder's share percentage are less likely to implement and disclose cash compensation incentive schemes; (3) implementing and disclosing cash compensation incentive schemes can improve corporate performance; (4) there are no significant evidences that companies that implement and disclose cash compensation incentive schemes have lower earning quality or higher discretionary accruals.This paper concludes that the systematization and transparency of top management compensation policies will increase top management compensation performance sensitivity and corporate performance. Thus, listed companies should disclose more information about top management compensation policies, and implementing top management cash compensation scheme should be encouraged.