The Impact Of Board Characteristic On Executive Compensation And Pay-performance Sensitivity

The success or failure of enterprises have a very close relationship with senior managers. To ensure that corporate top managers to make decisions to maximize the interests of shareholders, it is necessary to design various of incentive measures and the corresponding bound system. In many incentives, the incentive pay is the most important one. According to the company's performance to design the executive Compensation can give executives an effective incentive to guide the conduct of executives to solve the principal-agent problem. However, in recent years, it is a serious problem that there is no relationship between Compensation and performance. Public media pay more attention to the executive Compensation. Board as a Corporate Governance Center, One of the important functions of the Board is to determine the Compensation levels of executives. The effectiveness of the board will have an impact on the executive Compensation and Pay-performance Sensitivity. Then these are urgent questions to test that the board play what role in the formulation the executive Compensation and the characteristics variable of Board to the impaction on the executive Compensation and Pay-performance Sensitivity.The article first reviews abroad and domestic literatures about the relation between executive compensation and board governance. Based on agent theory and managerial power approach., the paper put forward the research hypothesis and build the model. The sample of this empirical analysis includes all the "A-shares" in Shanghai and Shenzhen stock market from 2005 to 2007 the final sample capacity is 3671.The Empirical Analysis including two parts:the board governance impacting the executive Compensation and Pay-performance Sensitivity. Empirical analysis is divided into three parts:First of all, setting up linear regression models to analyze the relation of board governance and executive compensation Secondly, the article test the endogenous relations between Executive compensation and corporate performance using Hausman method. Third, because the board is the bodies that design the executive compensation, the effective board should design the contracts with the company's performance, therefore, this article further analyses the impact of the board governance on Pay-performance Sensitivity. The empirical results show that:the larger the board the higher executive compensation, the larger the board the lower the sensitivity, big size is not conducive to design management compensation according to the interests of shareholders; The incompatible of the board Chairman and general manager enhance the executive compensation and reduce the pay-performance sensitivity. The higher the proportion of independent directors, the higher executive compensation.But the proportion of independent directors in favor of strengthening the pay-sensitivity sensitivity The Remuneration Committee increases executive compensation, and the Remuneration Committee reduce this sensitivity obviously. In the last part, the article summarized the findings of this paper and put forward policy proposals according to the corresponding empirical results.