The Relationship Between The Executives’ Compensation And M&A Behavior

Over the past few decades, the executive compensation has being a popular topic in recent years, and the fast increasing executive compensation attracts much attention. Nowadays the executive compensation transfers from a function of solving agent problem to part of it. In our socialist regime, the role of executive compensation is not only promoting economic development efficiently, but also helping the state-owned enterprises to assume the responsibility of national development. The government has always taken many controls in the executive compensation of state-owned enterprise; yet, this kind of control inevitability leads to distorting the executive compensation of the state-owned enterprise. In2005, share reform provides good conditions for M&A. Therefore, the number of M&A events in state-owned enterprises rises from589in2006to1656in2010. However, it is the coincident that M&A occurred in the corporate in which the executive compensation raised quickly. The main topic of this paper is to analyze whether the relationship between the executive compensation and the performance in the state-owned enterprises exists during M&A years.Firstly, this paper states the theoretical and practical background about M&A stimulated by executives, and then describes the relevant regulations. Secondly, we review some theories and literatures on the executive compensation and M&A. Thirdly, from the’the executive right-the behavior of M&A-the executive compensation’perspective, this paper discusses and researches whether the compensation of the executives in state-owned enterprise leads to agency problems, by quantifying the executive compensation and the performance of state-owned enterprise respectively. Finally, we chose state-owned listed companies in Chinese stock market from2006-2010as original samples, who are buyers in M&A, and after eliminating the samples whose relative M&A scale less than4%, we get526samples. By analyzing these samples, regressing the factors, testing their correlation, we obtain following conclusions:(1) in the state-owned enterprises where the M&A happened as buyers, the executive compensation incentive does not work well, and the performance does not increase after M&A. The improvement of the executives’compensation does not depend on the performance improvement, but on how much the M&A scale is;(2) the executive compensation raise a lot through M&A:the larger the M&A scale of the state-owned listed company, the greater the sizes of the enterprises changed, and the higher the executive compensation increase. The compensation of the executives in state-owned enterprises raised depended on the enterprise sizes expanding though M&A;(3) although it is not oblivious that the stock option can restrain M&A which didn’t improve the performance of the enterprises, but to a certain, the stock option can partly release the executives’compensation problems caused by M&A. This unobvious conclusion may be related with the low stock option to the executives in state-owned enterprise in China, but it provides some inspiration on how to reduce the agency cost, and constitute the executive incentive.Based on the analyses of this study, we find that Compensation-Performance evaluation system in enterprises has gradually shown its effect in recent years, but it can not fully explain the relation between executives’compensation and the performance of the enterprise the executives work for. To some extent, the executives take some actions through their rights, such as:getting compensation by themselves, acquisition and so on, which makes the compensation contract inefficient. Future researches would pay more attention to the executives’power in the incentive mechanism, for it may lead to the agency problems. In addition to improve the effect of the incentive mechanism and disclose the information of executive compensation needs discussion in a deeper degree.