The Empirical Study Of The Relationship Between Senior Managers' Compensation And Performance Of Listed Banks

During the past 10 years, China's commercial banks have taken fundamental reform in the corporate governance, developing strategy, operation ideal by introducing into strategic investor or going public. Especially, these banks have taken useful explorations all along in building top managers' incentive and restraint mechanism, and have gain some effectiveness. As the international financial crisis occurring, some problems which go against the commercial banks' sustainable development are emerging in the field of top managers' compensation incentive mechanism. For example, in 2009, the "compensation champion" of presidents'among China's banks is Shenzhen development bank's presidents——Frank.N.Newman, whose yearly compensation is 17,410,000 RMB and is 1,430,000 RMB more than 2008's compensation. This bank's CEO's yearly compensation is also up to 4,860,000 RMB. Although the bank's Capital Adequacy Ratio and Core Capital Adequacy Ratio in 2009 were higher than in 2008, which were 8.88% and 5.52%, the two ratios still haven't meet the China Banking Regulatory Commission's requirements:10%and 7%. Although the top managers'yearly compensation of Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Bank of Communications were seem to cut, all sectors of the society have dispute on the relationship between the top managers' compensation and banks'performance, as the annual report only announce the top managers' compensation partly. So the top managers' conpensation of banks still receive unprecedented attention.In order to deal with the public questioning and ensure the stable development of the banking industry, increase supervising the financial top managements' incentives and promote the top managers' incentive mechanism of financial organizations to be perfect, the Ministry of Finance and China Banking Regulatory Commission promulgated The management methods of state-owned and state-held banks' superintendents' incentives (exposure draft) and The supervising guidelines of commercial banks' temperate incentives one after another. These measures will convoy conflict for the China's financial stability.Based on such background, the paper studies the top managers' incentive mechanism of the listed banks in China and explores how to design the top managers' incentive mechanism, which will have great importance to the banking industry's temperate and sustainable development in China. Because the listed banks which have big market share are the "bellwether" of China's banking industry and are important to China's banking stabilization, this paper selects 14 listed banks in China as study samples, which have more representativeness and importance. At the same time, the listed banks in China have taken positive exploration in corporate governance, risk management and building top managers'compensation incentive mechanism and have more complete information disclosure, which will provide more information for our empirical study. So, based on the previous studies, this paper's empirical study will consider the banks'risk management and corporate governance's affect to the top managers'incentive and performances entirely, which will provide supplement for previous studies and give more empirical evidences and targeted suggestions for improve top managers' incentive mechanism.The structure of this paper goes as follow. Firstly, we make a summary of those literatures about senior managers'compensation and company's performance to find the blank space that we can expand. Then we collect and settle annual reports of 14 listed banks and analyze the statistic to describe the situation and problems of senior managers'compensation in our listed banks. Then based on the principal-agent theory, we choose senior managers'compensation and bank's performance as dependent variables, and choose such variables like risk, growth, corporate governance to be control variables. And we make compensation decision model, compensation viscous model and compensation effect model to make a complete study of the relation between senior managers'compensation and bank's performance. We mainly draw the following conclusions:senior managers'compensation and banks performance in the listed banks has interaction, and the ROA and capital size has positive correlation with senior managers'compensation. The conclusions show that our listed banks have built benign compensation-performance interactive mechanism.And the Independent directors and supervisors have no significant effect on senior managers'compensation and bank's performance. In addition, this paper finds that there's no compensation viscidity in the listed banks. At last, this paper gives some advices to improve the incentive mechanism of our commercial banks. These suggestions are as follows:compensation incentive should be combined with performance management; short-term incentive should be combined with long-term incentive; improve the corporate governance and strengthen internal supervision; improve the quality of information disclosure to strengthen social public and investors'supervision investors; and cultivate career bankers market greatly.