The Influencing Factors Of Senior Executives’ Monetary Rewards In Listed Companies Of China

In the market-based economic society, the emerging of corporate system has increased the development level of productivity, enhanced the socialization of production and management level, but also led to the trends of transferring the enterprise control of the owner to the hands of enterprise managers. The agency problem has become the core issue of corporate governance. Agency problem refers to the case of separation of powers, due to managers’holding only a small part of or completely not hold corporate shares, which cause the managers’utility functions are different from the owners’, managers may deviate from the owners’ objectives because of their own benefits. The direct reasons of this problem are the information asymmetry between the owner and managers, and environmental uncertainty. The solution to the agency problem is that the company owner (the principal) must establish a sound incentive and restraint mechanisms. The monetary rewards as the main form of material incentives has become the study contents of many financial economists. As our country’s institutional context is obvious different from the Western countries’, and in the national economic system, there are many different natures of the business, which makes management remuneration has its own characteristics, comparing to the Western developed countries. Therefore studying the payment of executives of our Chinese listed companies appears to be very valuable.Payment system is the most effective tool to solve the agency problem within the company. With the rapid development of market economy, the influencing factors of executive payments have become more and more complex. In addition to corporate performance, ownership structure, corporate governance structure, the external market environment, human capital, there are also other factors, like the ownership, management power and so on. Firstly, I studied whether the payments related to performance, as in an effective compensation contract, executive payments and performance should be positively related, the better the performance, the higher the payments. Secondly, I studied how the nature of the ultimate controller influenced the currency remuneration of executives. This article divided the listed companies according to the nature of their ultimate controller into six groups, including:central government controlled companies, local government controlled companies, private companies and company-funded enterprises (joint ventures, Sino-foreign joint ventures, foreign-invested enterprises), institutions, collective enterprises. Then I compared the degree of management power and other factors affecting the monetary compensation in the different groups. Finally, I studied the combined effects of corporate performance, the nature of the ultimate controller, management power and other factors on the remuneration, particularly the nature of ultimate controller influences the sensitivity between remuneration and performance. This paper hopes to provide data evidence for the study of executives’compensation, and some useful suggestions for China’s listed companies to establish a sound compensation system, and offer a slender power to improve our economic system.Factors of remuneration of corporate executives are divided into three main aspects:Company’s performance is the first factor, including accounting earnings and market returns evaluation criteria. However, the academy has not reached a consensus on impact of the performance to the remuneration; the second factor is the company’s characteristics, including industries, locations, and other external characteristics and firm size, governance structure and other internal features. Most domestic and foreign studies agree company size, board size have positive influences on executive payments. Industries, geographies and corporate governance structure influence the remuneration of executives; the last factor is the manager’s own human capital characteristics. The main conclusions are:the age, working time, whether the founders have positive relations with their pay, education, gender, profession and managerial ownership will also affect income.Payment is to solve the agency problem, but the existence of management power makes payment become a result of agency problem. Management power theory is the contrary to the optimal contract theory. It emphasizes the executives put influence on the board or the Remuneration Committee in the course of making the remuneration policy. According to relevant research findings, the nature of the controlling shareholders in the state, local government shareholders have more driving force than the central government shareholders to develop the economy, thus enhance the performance of listed companies under its control.The research sample of this study was chosen from all Shanghai and Shenzhen A-share listed companies in 2008-2009, in order to ensure comparability of data, according to certain criteria, the data were screened. This article defined executive as chairman and managing director of listed companies. Taking into account the purpose of the study I selected the company’s performance, management power, the nature of the ultimate controller, company size, risk, growth, capital structure, ownership balance as variables. In the selection of performance indicators, taking into account the stability, the article used return on equity (ROE), return on assets (ROA) and Tobin’s Q value as variables. Management power indicators were the largest shareholder’s ownership percentage, general managers holding chairman position at the same time, the proportion of managerial ownership and the proportion of independent directors.1. The study divided the sample into several groups according to the positions held by executives, the company’s industry, and the nature of the ultimate controller. Descriptive statistics of the groups were carried out. Results were:(1) Monetary compensation has improved overall, and in the same jobs pay gap between executives decreased. Executives who take two positions had higher payment overall than executives who only are general manager or chairman of the board.(2) The level of executive compensation varied from industries, the real estate industry had the highest income (this article does not consider the data in the financial sector), but the average annual compensations of different real estate companies were quite different.(3) The impact of the nature of the ultimate controller on executive pay was very obvious. Executives in the companies which were controlled by the foreign-funded enterprises had the highest average annual income. Local government controlled listed companies had the maximum executive payment.2. The descriptive statistics of the main variables were:the largest shareholder held about 1/3 of the company equity, so they can play a significant impact on the company’s business activities. The case of taking two jobs in listed companies was not very common, the local government-controlled listed companies accounted for the largest number of samples.3. In the empirical section, this set of three models of regression analysis conducted to test the hypothesis proposed earlier. The main conclusions were:(1) Executives’compensation and the current and pre-dispersion of performance and equity were significantly positively correlated, while executive pay was not only affected by the accounting performance, but also by the market performance. Financial risk brought a negative impact on salaries; capital structure would affect executive compensation.(2) Regardless of the nature of the ultimate controller, the listed companies’ managers’salaries were positively correlated with management power. Two positions or the higher the shareholding ratio, the greater the management power, the higher payment; and the largest shareholder’s holdings played a inhibition to management power; independent directors didn’t play its independent role in the Board, leading to the larger management power.(3) The executive payments of foreign-funded enterprises controlled listed companies were the highest. The relevancy between the nature-local government and its controlled listed companies’executives’monetary rewards was the weakest, indicating that the local government-controlled listed companies didn’t provide more effective monetary compensation incentives to the executives. Under the influence of the nature of the ultimate controller, the sensitivity between executive monetary rewards and the performance of listed companies decreased.Compared with previous studies, the contributions of this study are:1. Dividing the samples according to the nature of ultimate controller of the listed companies. This division helps to observe how the nature of the ultimate controller impacts on executives’pay clearly. Local government officials are influenced by the promotion system and performance evaluation mechanism. So its’controlled listed companies have the different executive compensation incentive mechanism, motivation and the effectiveness of incentives from the central government. The study finds the central government, as the ultimate controller will play a positive influence on executive monetary rewards. Foreign-funded enterprises play the most significant positive impact on executive monetary rewards. Under different ultimate controller, I found that influencing factors played different roles in the listed companies. This may help to improve our economic system.2. Combined with China’s reality, studying how the management power influenced managers making compensation policy under different ultimate controller. The management power would increase internal agency problem, and the study discovered the patterns of the management power in the local governments and private enterprises controlled listed companies. In local government controlled listed companies, management power appeared mainly as managerial ownership, in private enterprise controlled listed companies the management power mainly appeared to be taking two positions. This article enriched our country’s study of ultimate controller and management power.