Public Company Accounting Profit And Market Performance On Executive Compensation

Effective corporate governance has been the focus of theorists and entrepreneurs for a long time. An efficient compensation system that links to the corporate performance can align the interests of managers and shareholders. With the establishments of modern enterprise system and share-trading reforms in our country, are there any correlations between managerial compensation and the corporate performance? As two assessment methods, which one plays a more important role in the incentive system, accounting profit or market performance?The dissertation uses a new perspective, trying to do some further research on statistical methods and sample selection in this area. It begins with the review and comparison of empirical research on the relation between managerial compensation and corporate performance home and abroad. Then based on data from 2004-2006 of annual reports of China's listed companies, the dissertation investigates the monetary income and equity income of managers using statistical description analysis.The main part of the dissertation constructs two compensation models to testify the different effect of two assessment methods on managerial compensation. The empirical research shows that both accounting profit and market performance have a significant positive impact on the managerial compensation. This means shareholders' fortune will affect managerial compensation. Simultaneously, by comparing two compensation models, accounting profit plays a more important role in determining managerial compensation. In the mean while, managerial compensation is also closely related to the firm size and industry, but not related to the type of the controller.The combination of two assessment methods is one way to resolve principal-agent problem. Because of the immature capital market and the method's own disadvantage, market performance plays a less significant role in determining managerial compensation in our country. Consequently, in order to bring the assessment method of market performance in to full play, the dissertation strongly suggests that it is imperative to improve capital market, professional-manager market and executive evaluation commission.