Research On Senior Executives’ Compensation Based On Relative Performance Evaluation

With the coming of the knowledge economy era, information technology industryhas become an important impetus for economic development, and playing the more andmore important role. Senior executives as the top decision makers of IT listed company,is the most precious human resources of the enterprise growth and development. In thenew classical economics of the manufacturers theory, enterprise is regarded as a "blackbox", and is highly abstract as a production function that entirelydetermined by exogenous technical, which can precise calculate input and output, theenterprise’ purpose is maximize profits or minimize production costs. The new classicaleconomics of the manufacturers theory did not go to approximate describe complex firm,it completely ignored the operation of the enterprise and incentive problems. But as weknow the real enterprise is different, the behavior of different stakeholders have animpact on business, the behavior of senior managers is undoubtedly one of themost important factor. Since Berle&Means (1932) clearly put forward "the thesis ofseparation of ownership", How to formulate appropriate governance mechanism toreduce agency costs, and to achieve maximization of shareholder wealth, which becomethe focus attention in theory and practice. The compensation incentive of seniorexecutives as an important governance mechanism will undoubtedly be given a highdegree of attention by investors and the public, also been raised many questions, Suchas, whether the senior managers’ compensation is too high or not? How to design morereasonable compensation incentive system? Senior managers’ compensation incentiveof IT listed company has also similar problems. As high-tech enterprise, human capitalis the core resources of public information technology enterprise, therefore, establishingthe reasonable senior managers’ compensation incentive mechanism has very importantpractical significance, which will motivate senior managers to work hard and improvethe competitiveness of enterprises.This paper begin with the incentive theory and principal-agent theory, introducingrelative performance evaluation (RPE) theory, choosing the IT listed company as theresearch object, finally, selecting164IT listed company of2005-2009years, for thetotal of820samples. This paper using the panel data, from the perspective of relativeperformance evaluation, texting the relation between senior executives’ pay of IT listedcompany and company performance, the results showed that the senior executive pay and company performance is positively related, the senior executive pay andindustry-related performance is negatively related, To some extent, RPE exists in ITlisted company. Finally, on the basis of the empirical analysis, this paper, building therelative performance evaluation index system based on RPE, and introducing the theoryof relative performance evaluation to the relative performance evaluation index system,which can be more objectively to evaluate the company performance that brought fromthe efforts of senior executive. Then this paper, combined with analyzing of the currentsituation of senior executive’ compensation incentive, established the senior managers’compensation incentive mechanism that based on relative performance evaluation, tosolve the problems of senior managers’ compensation incentive, achieve the optimalincentive to executives and promote enterprise’s rapid and sustainable development.The results of study in this paper, enrich the theory of motivation, it has referencesignificance for information technology industry to build a scientific and rational systemof competition incentive.