Research On The Relationship Between Executive Compensation And Business Performance Based On Enterprise Life Cycle

The Principal-agent theory is that when the information asymmetries and conflicts of interest exist between the principal and agent, there may be issues of moral hazard. Being a kind of typical principal-agent relationships between shareholders and executives, shareholders need to construct a compensation contract with executives to ensure that their interests are not undermined, and their interest is the direct embodiment of financial indicators. Nowadays, China’s stock market "links fall", the operational efficiency of listed company is also good and bad. It was reported that and a plurality of executives got overpriced pay, that makes researches of the relationship between executive compensation and company performance levels become more important. In the 21 st century, the Internet industry has undergone tremendous changes in China, affecting with whole IT industry of flourish. Its high-growth, high-return and high-risk property not only bring opportunities for companies, but also makes business decision-making complicated. Therefore, shareholder and executives as enterprise operators need to establish more effective compensation contracts to motivate the potential of executives, create better performance and avoid the problems brought by moral risk. To sum up, it is practically significant to research the relationship between executive compensation and business performance based on IT industry.Based on the relevant research literature, we select the A-share listed companies in Shanghai and Shenzhen Stock Exchange in the IT industry as object of the study. We collect the 3 years data from 2012 to 2014 of 122 companies and 361 samples, use SPSS software as analysis tool to carry out empirical statistical analysis of the relationship between executive compensation and business performance. In order to make the study more detailed, the results more targeted, firstly, we divide 361 samples into different stages in life cycle in the way of combining industrial growth rate method and cash flow method; then, we carry out correlation analysis and regression analysis to verify the relationship between executive compensation and performance on different stages of life cycle. The return results contain three points. First, there is a significant correlation between IT industry companies’ executive compensation and business performance. Secondly, on different stages of enterprise life cycle, executive compensation has relationship with different performance indicators. Thirdly, there is a significant positive correlation between executive compensation levels and company size for listed companies in the IT industry; finally, according to the findings, this paper provides four suggestions on executive management and determination of executive compensation for companies in the IT industry from the perspective of both internal and external. From the perspective of peripheral environment construction, a more perfect and effective professional manager market should be established. From the perspective of internal executive compensation management, there are three suggestions. At first, the effect of enterprises scale on determination of the company’s executive compensation should be valued. Second, companies should rely on the enterprise life cycle to design the performance evaluation methods of executives. At last, performance indicators should play a more important role in determining the executive compensation, and we should strengthen punitive negative incentive.