The Impact Of Relative Performance Evaluation On Executive Compensation Of Listed Companies In China

As the development and change of enterprises' strategy mode, the role of executives becomes more and more important in modern enterprises, and gradually becomes the enterprises' core competitiveness. In a modern enterprise, with the separation of owners' and managers' rights, a good incentive system can motivate its executives to restrict their behaviors, make efforts to enterprises' operations and long-term development ,in order to achieve maximum shareholders' wealth. However, the business environment of modern enterprises changes very fast, the external shocks and impact of companies are also growing. How to make an objective, fair and accurate comprehensive assessment of a executive in a certain operational period is the future development direction and focus of Relative Performance Evaluation theory.This paper introduces the Relative Performance Evaluation (RPE) theory, through the comparison of the agents' performance whose jobs are alike or similar, by removing the "noise" of the market ,to get more information which associates with the agent actions, to evaluate enterprise performance brought by an enterprises' agent more accurate, and to reduce the risk of an agent, thus provides a stronger incentive for the agent.Making use of data of 2006-2008 from Chinese listed companies,this paper tests relative performance evaluation(RPE)of executives.The result presents that RPE evidence exists in our capital market.The part of executives'salaries which exceeds the industry level has co-correlation relationship with the part of accounting return which exceeds the industry level. In addition,the scales of company,ownership and executives tenure also play important parts in executives'exceeded compensation.