Executive Compensation External Equity, Equity Concentration And Firm Performance

One of the basic characteristics for modern enterprise system is the separation of the two rights, namely the ownership and the operating right, a senior manager is in charge of the operating right in a company. With the development of society and economy, the social status of managers in enterprises gradually has been promoted and the view that how to effectively utilize the power of management has been on the topic, a great number of researchers agree that the high compensation, being incentive to senior executives, is an effective way to solve the agency problem. In recent years,‘Sky-high Salary’, frequently happened, is considered as a cause of affecting rationality and fairness, arising more attentions.The equity theory proposed by Adams, deems that fairness is a method that individuals evaluate between others and themselves in the social level, including their own opinions and abilities, in order to obtain the sense of social justice and incentives then. As for the executive compensation, fairness is one of the most important factors.Not only is a senior management compared with other managements in the same company( internal equity), but also the target can be other managements in the same industry(external equity), especially promulgated the ‘New Enterprise Financial Report Disclosure Standards’ at the beginning of the twenty-first Century, in which the listing corporation in China began to implement the mandatory disclosure of personal compensations of each incumbent directors, supervisors and senior management. Meanwhile, the transparency of the compensation could be served to manage companies and help management to obtain the real statuses of the other executives. It also generates a new cognition of their own compensation in the area of fairness through comparative analyses.Ownership Structure is a foundation of the enterprise, and determines the ownership, as well as domination and the scope of use for the control right, it is the basis for corporate governances, which remarkably affect corporate performances.Ownership concentration, as one of the dimensions, affects the efficiency on the corporate governances, and then the performances. The different ownershipconcentration create the different level of the shareholders’ rights and the supervision on managements, it has different limits when the managements formulating compensation system, and that would generate different results.A private enterprise as the main force of the market economy, is the forerunner of the development of the market economy in our country. Meanwhile, it is to ease the employment pressure and improve the livelihood. In the 1970 s, our country began to implement the policy of ‘Reform and Open’, private enterprises are the one of the biggest beneficiaries and the power of reforming deeply. Besides, its performance has a link with the normal operation of the national economy and social economic activities. Under the background, this paper will take a research on the external equity of the compensation for senior managements and the relationship between ownership concentration and corporate performance, based on the private companies.Specifically, the listing private enterprises in the main board of Shenzhen Stock Exchange have been chosen as the benchmarks in this paper, based on the financial statistics data in three consecutive years(from 2012 to 2014). Initially, it can be the definition of corporate performance, external fairness of executives, ownership concentration etc. Then according to the related literatures, the hypothesis of this study would be proposed, in reference to the existing academic theories and researches. After that, it is to verify the effect of external equity for executives’ compensation on corporate performance, ownership concentration on corporate performance by real cases. It involves multiple research methods, such as regression analysis, descriptive statistical analysis, correlation analysis etc.The result shows that the assumptions proposed come into existence: the positive external gap for the executives’ compensation has a remarkably positive impact on the performance of private companies, but there is no relationship between the negative external gap for the executives’ compensation; the ownership concentration has a positive influence on the corporate performance; the ownership concentration could positively affect the relationship between the external fairness of the executives’ compensation and the performance of corporations. In the end, it is to conclude by the result of practices, as well as propose the limitations and prospects of the research.