An Analysis On The Correlation Between Top-managers' Pay Performance Sensitivity And Firm's Performance

With the rapid increase of China's economy and constantly improvement of market economic mechanism, the modern corporate system has been generally adopted by Chinese listed companies. Due to the separation of corporate ownership and decision control of modern-day corporation, it is the balance between the two rights to control the economic resource in the company. At the same time, the existence of information asymmetry between the owners and managers causes the adverse selection and moral hazard. Thus, the problem of monitoring the top management by compensation, in the hope of maximizing the value of the company while satisfying the benefits of top management, has become a widely studied topic.This paper theoretically and empirically analyzes the correlation between the compensation sensitivity of top managers and the company's performance by using the data of Chinese real estate companies listed on Shanghai and Shenzhen Stock Market in China. First of all, this paper reviews the literatures about the correlation between the compensation sensitivity of top managers and the company's performance, which gives the purpose of this study. Second of all, the paper gives the theoretical analysis of the topic by using Agency Theory, Human Capital Management Theory, Motivation Theory and Managerialism Theory. Third of all, this paper uses the multiple linear regression models to analyze the correlation between the executive's compensation and company's performance, and correlation between compensation sensitivity of top managers and the company's performance respectively, by controlling the influence from firm size, firm growth, firm leverage and ownership. Lastly, the thesis is trying to give the valuable advice to improve the system of motivation of managers in real estate companies in China according to the empirical results.