Performance Of Listed Companies - Payment Incentives

In 2005,China launched a momentous reform in the capital market and put an end to the stock market with the co-existence of tradable and non-tradable shares. The dominant state-owned shares, complex ownership structure, and centralized controlling shares have remained as the characteristics of China's listed companies.This paper regards the split-share structure reform as an exogenous policy variable and breaks down the listed companies into central state-owned, local state-owned, collective-owned, employee-owned, private and foreign-owned as the research object, using company samples during from 2001 to 2007 to test the relationship between executive compensation and corporate performance for China's listed companies. It also takes into account impact of corporate governace and the depth and width of ownership to analyze the pay-performance relationship. Both accounting and capital market performance indicators are included in the comparative analysis before and after the reform.Our research shows that the non-tradable reform has a significant impact on the improvement of executive compensation incentive in listed companies.Also as a policy variable, the signaling effect of the reform had a bigger influence than its actual practice, with the state bureau owned, central state-owned and collective-owned listed companies most significantly affected and private-owned ones the least.The sensitivity analysis reveals that compensation raise was mainly from the growth of corporate assets rather than the relevance between executive compensation and corporate performance measured by market indicators or accounting indicators, which means corporate performance has limited contribution to the compensation incentive.The last part of this paper concludes some policy suggestions.China's listed companies need to improve the incentive compensation mechanism and implement both spiritual incentive and monetary incentives so that a multi-level,multi-factor incentive mechanism can be established. Meanwhile, we can further promote the diversity and efficiency of incentive compensation mechanism by nurturing a mature executive market and capital market, establishing a sound restraint mechanism and improving relevant laws and regulations to ensure a modernized corporate system.