An Empirical Research On The Relationship Between Management Power And Non-pecuniary Compensation Of Executives In Listed Companies

In recent years, the executive pay issue of listed companies has attracted public attention. At the same time executive remuneration reports are also frequently seen in the media. Why executives can determine their own remuneration? A growing number of foreign scholars in recent years started to pay attention to this problem, their research shows that the company’s management influence greatly and even determine their own salaries, thus a new school of remuneration-theory of management power was proposed. However, there are not many studies from Chinese scholars in this field, so there is much to explore. We note that the discussion is more about monetary remuneration of the executives that can be found in annual reports each year. However, in addition to the dominant monetary pay, executives enjoy other non-pecuniary compensation benefits and entitlements. Job consumption is one of them. Non-pecuniary compensation is uncertain and hidden. Compared to the monetary remuneration so much less attention is paid to non-pecuniary compensation. Coupled with there is no mandatory disclosure of the amount of non-pecuniary compensation in china’s annual report disclosure rules, which makes it difficult to obtain exact amount when scholars try to study. More or less that hinders scholar’s study on non-pecuniary compensation. Based on this, we design management power indicator based on the actual situation of China’s listed companies from the dynamic perspective of "the management power-serving consumer-performance of the company ". That will be used to test practicality of the management power theory in China and if the non-pecuniary compensation has also become part of the agency problem.The theoretical review of this article described the agency theory and management power theory and discusses the real possibility of management power combining with china’s actual situation. The literature review section reviews the literature on the management power and non-pecuniary compensation at home and abroad. Based on this, we put forward the three hypotheses:H1:In the case of other conditions remain unchanged, the greater the management power, the higher its service consumption levels;H2:Compared to the state-owned listed companies, non-state-owned listed companies have greater management power and a higher degree of serving consumer;H3:Serving consumer will have a significant negative impact on the performance of the company, and it’s a significant negative correlation between service consumption levels and performance of the company.This paper collects a total of2588samples from between the year of2007-2010Shanghai Stock Exchange and Shenzhen Stock Exchange A-share listed companies. The non-pecuniary compensation data was got manually by reading the statistics "Other cash flow related to operating activities" line items that may contain the-job consumption data, and other data were collected from the CSMAR database. The samples were divided into state-owned listed companies and non-state-owned listed companies in descriptive statistics. We can see that differences in test:compared to state-owned listed companies, non-state-owned listed company’s management power is significantly greater than the state-owned listed company’s management power; non-pecuniary compensation levels (the amount of non-pecuniary compensation/operating income), non-state-owned company was also significantly greater than that of the state-owned listed companies.In addition, the sample was divided into the type of management power and type of non-management power. By comparison, service consumption levels of the type of management power are significantly greater than that of type of non-management power.Combination of regression results to further analysis,the conclusions as following:Compared to non-management power company, the non-pecuniary compensation levels of the management power company’s were significantly higher, and management of listed companies do use the right in their possession to obtain more service consumption. And further test, we found compared to non-management power company, company’s performance is not significantly better in the management power company. At the same time, we divided the samples into state-owned listed companies and non-state-owned listed companies, the sub-sample test results further confirmed that the service consumption level of non-state-owned listed companies was greater than that of the state-owned listed companies, which we assumed is consistent. Test service consumption and company performance, we found that non-pecuniary compensation and company performance was significantly negatively in both of the state-owned listed companies and non-state-owned listed companies. So we believe that the job consumption reduces corporate performance, and exacerbates the company’s agency problem, which is consistent with our hypothesis. At the same time, we found that, compared to non-state-owned listed companies, the job consumption of state-owned listed companies on the company performance erosion is more severe. That indicates the more serious agency problems caused by the non-pecuniary compensation in state-owned listed companies.Through the above analysis and research, we believe that:First, the management power of the listed companies does improve level of non-pecuniary compensation in China. Thereby the non-pecuniary compensation leads to more serious agency problems. So we must be highly concerned about the management power and emphasis on non-pecuniary compensation issues in the future. Because executives of listed companies influence corporate governance mechanisms by the power of their own to reduce the supervision and restraint.That will cause more non-pecuniary compensation and other personal gain, and damage the interests of the company. We believe that how to authorize and constraint is the key to motivate, the power without supervision and restraint misleads the management to get personal gains. Therefore, the government or the equity investors need to learn to identify enterprises with management power, and executives’personal interests should be given appropriate oversight and market punishment, thereby reduce its negative effects. Secondly, there are few of research about private listed companies serving consumer in the literature of the past. This study found that compared to the state-owned listed companies, private listed companies have greater power of management and a higher degree of job consumption. With the development of China’s private enterprises, the private enterprises’agency problem between management and shareholders, large shareholders and small shareholders should be attracted more attention.Third, compared to non-state-owned listed companies, it is greater that the absolute value of serving consumption in state-owned listed companies, the erosion of the non-pecuniary compensation to the performance of the company is more serious, indicating that the governance of state-owned listed companies is still grim. In summary, there are still lot of problems to be solved, for example how to strengthen the supervision and regulation on the management in listed companies of China, how to improve internal corporate governance and reduce management’s opportunistic behavior.The contributions of this paper are two points as following:First, the paper samples are divided into state-owned listed companies and non-state-owned listed companies. We find that:compared with state-owned listed companies, non-state-owned listed companies have greater power of management and higher non-pecuniary compensation level, and this conclusion is different from the concept people usually have. Second, this paper combines with the management power and non-pecuniary compensation, and confirms that the power of management improves the level of service consumption of the listed companies, and proves the applicability of the theory of management power in China. At the same time, the paper enriches the literature on the non-pecuniary compensation.There are three points about limitations of this article as following:First, this study samples accounted for the proportion of listed companies is small,. only about35%of all listed companies, which may impact the conclusion.It is mainly due to that the financial statement disclosure of listed companies is not incomplete and the disclosure of data standards are not uniform in China, that lead to a significant portion of the company did not disclose non-pecuniary compensation data. Second, it is difficult to measure non-pecuniary compensation. Generally it’s believed that non-pecuniary compensation is disclosure in "paid cash flows relating to operating activities", but we can’t determine whether these costs belong to the normal expenses. Therefore, the service consumption data collected in this article may include normal business expenses and may also include abnormal expenses to meet the personal effects of the executives.That may makes the conclusion of this article is not accurate enough. Third, induction on the theory of management power may be not enough and the selection and design of management power variables remain to be improved, that will result the samples can’t accurately cover all of the enterprises with management power, and may affect the conclusions.