A Study Of Top Management Compensation Stickiness And Its Influential Factors

Principal agent theory and information economics model consider that the optimal topmanagement compensation contract should be a compensation contract that executivecompensation is related to corporate performance. Many empirical researches pay attention tothe linear relationship between executive compensation and corporate performance. In recentyears, scholars began to focus on the non-linear relationship between them，which is called asexecutive compensation stickness. Executive compensation stickness is defined as that thesensitivity of executive compensation and corporate performance, is greater than thesensitivity when corporate performance decline. Executive compensation stickness willweaken the incentive effects of executive compensation, and becomes a path for theexpansion of executive compensation, and enlarge the compensation gap between theexecutives and ordinary employees. Researches in executive compensation stickness are veryuseful in helping us to understand and appraise executive compensation system, and toimprove executive compensation incentive effects.By using a combination of theoretical analysis and empirical analysis, this paper discusesthe top management compensation stickness and its influence factors. The first chapter is anintroduction. It introduces the background and the significance of this study, the review of therelevant literatures, the main contents of this paper and the research methods. The secondchapter first defines the concept of executive compensation and compensation stickness, andthen explains the executive incentive theory, such as principal-agent theory, informationeconomics theory, as well as human capital theory, motivation theory. Based on the theoriesthe research hypotheses are made. The third chapter, by using multiple regression methods,examines the sensitivity between executive compensation and corporate performance ofChina’s listed companies, does the empirical test for the existence of executive compensationstickness. The fourth chapter studies the influence factors of executive compensationstickness-the time factor and the industry factors. Finally, the paper summarizes theconclusions of this study.The findings are:(1) in china’s listed corporate there is a linear relation betweenexecutive compensation and corporate performance, and the relation is weak, It shows that China’s listed companies’ executive compensation policies are not so effective.(2) Theexistence of the executive compensation incentive stickness is verified; the compensationstickness becomes a path for the expansion of executive compensation, and weakens theincentive effects of executive compensation.(3) The sensitivity of executive compensationand corporate performance is the inverted U-shaped change with the increase in corporateperformance,(4) the executive compensation stickness is not eased over time and (5) theexecutive compensation stickness affected by industry factors. Companies should developtheir executive compensation incentive policies based on industry characteristics.