The Study On Relationship Of Top Management Compensation And Managerial Power

At the beginning of reform, the Chinese private enterprise had emerged.The private enterprise and family business have vigorous development in recent year. The government encourage and support the development of private enterprise. The top manager team is the most important human resource of private enterprise. The top management compensation has been regarded as a crucial corporate governance mechanism and effective incentive means.The top management compensation is a controversial topic in recent year. The optimal contract theory cannot explain the unreasonable compensation.We found that the managers have a great deal of influences on the process of deciding compensation.This paper studied the influence of managerial power on the top management compensation. By using the sample of China listed private enterprise from2007to2009, the paper found that managers can set their own pay by power, whose compensation is more sensitive, the correlation between the top management compensation and the profits is not significantly. When the owner is CEO. the top manager compensation is more sensitive to profits than its losses.This paper proved the managerial power can affect top management compensation or even determine the top manager’s compensation. Managerial power is not a way of solving the agency problem, but become a part of the agency problem. There are some advice and suggestion for private enterprise. It is suggested that the private enterprise should improve corporate governance mechanism, improve incentive system, employ outside professional managers and the introduction of institutional investors etc.