An Empirical Research On Relationship Between Executive Pay And Corporate Performance In Listed Companies

Ownership and management separated in Modern enterprise system, which changed a traditional formality the business operator is the owners, resulting in a principal-agent problem. In order to reduce the agency costs, listed companies will relate executive pay to company performance to design a contract to restrain executives. With the financial crisis, the price paid executives attracted global attention, exposing a series of problems. Reasonableness of compensation design is increasingly becoming a topic of academic interest, and relationship between executive compensation and corporate performance requires empirical testing. It is helpful to know and evaluate the current executive pay system of listed company in our country, so as to provide some ideas and reference to complete the executive pay system.This article adopts normative and empirical research methods, drawing lessons from the domestic and foreign existing research results and methods, and the combine the actual condition and problems of manufacturing industry in our country to research the relationship of executive pay and corporate performance and the factors which inflect formulation of executive pay. We adopt standard research methods to introduce theories related executive pay so as to analyze the influence factors; at the same time, we use the descriptive statistical method to analysis the current situation of manufacturing industry of our country, and adopt empirical test to research the relationship of executive pay and corporate performance and the factors which inflect formulation of executive pay.In this article, we select listed manufacturing companies in the Shanghai and Shenzhen Stock Exchange for the study and the 2001-2009 as time interval. Through researching the eight major industries under the manufacturing sector based panel data, the formulation of executive pay combine with company performance, the previous period performance and executive pay. However, the pay sensitivity of different industries is very different, and the selections of the company's performance indicators have different tendencies. Respectively, the state-owned listed companies and non-state-owned listed companies consider different factors to formulate executive pay. Among them, the more consistent conclusion, the current value of executive pay significantly relates with the value of the previous executive pay and performance, but they treat different choices to the performance indicators. For state-owned listed companies, there is a significant relationship between executive pay with the previous company performance value. But for non-state-owned listed companies, no matter what kind of performance indicators we selected, there is no significant relationship between executive pay with the previous company performance value. In addition, their executive pay has a significant positive correlation with growth ability and the company size, except the proportion of largest shareholder as the have opposite conclusion. Whether chairman and general manager is harmony or not, this variable does not significantly relate with executive pay. The conclusion of coefficient before ratio of liabilities to assets, the proportion of independent directors, board size, and the size of the board of supervisors is uneven.Through the conclusion of empirical testing, there are many problems the design of executive pay in manufacturing companies. Although compensation excitation has a certain extent effect, differences of the sensitivity of executive pay to performance between the different sectors is obvious. Different types of companies to develop the pay consider very different factors to formulate executive pay. For the establishment of long-term executive incentive compensation mechanism, based on empirical research, we make the following recommendations: (1) improve the formulation of executive compensation and corporate governance mechanisms; (2) improve the structure of executive pay; (3) enhance executive pay disclosure, and increase transparency of executive pay establishment; (4) establish the Remuneration Committee, manage the system of executive pay effectively.The innovation of this article is researching executive pay and company performance relationship which consider the previous period company's performance and executive pay. For the stable sequence industries, we select distributed lag regression model based on panel data, else we use error correction model based on panel data to analyze whose data have the same order sequence. It has inadequacies which we select only manufacturing companies, the overall listed companies situation remain to be studied. And because the time limit that the company's disclose annual report on executive pay. the time interval select only 9 years and it is shorter. As many listed companies only released the basic executive compensation not the specific remuneration mechanism, we don't join executives' stock ownership. In the future, as improvement of the disclosure mechanism of executive pay, we'll select the longer time series and join the executives'stock ownership to research the relationship of executive pay and corporate performance.