Non-operating Income, Management Of Power And Business Performance

The executive compensation has been regarded as a crucial corporate governance mechanism in the west. However, in recent years, a number of literatures have found that executive compensation does not necessarily solve the agency problem. The design and implementation of executive compensation on the basis of managerial power is also considered to become part of agency problem. Some articles also find Asymmetric benchmarking in compensation design for gains and losses performance, which indicates ineffectiveness of compensation incentive. Especially, the top managers may use its power to influence the design of compensation contracts.This paper studies the effectiveness of incentive compensation of top management team of listed companies based on the institutional background of China, and investigates the executive pay performance sensitivity from the aspect of influence of managerial power. The conclusions include:(1) Overall, there is high pay-performance sensitivity among Chinese listed companies, i.e. CEO pay and corporate performance significantly correlated. (2) Manager controllable performance is a significant positively correlated benchmark for executive compensation. (3) For manager uncontrollable performance, executive compensation has obvious asymmetric sensitivities with gains and losses. While the managerial power to some extent influences the executive pay-performance sensitivity.This study raises a question on the effectiveness of executive compensation mechanism. And it validates the managerial power theory to some extent. It also provides suggestions with regard to optimize executive compensation contract and improve corporate governance.