A Study On The Relationship Between Insider Control And Executive Compensation,Compensation Performance Sensitivity

The principal-agent problem and internal control caused by the separation of ownership and operation have an important influence on the relationship between executive pay and remuneration-Performance. As the main decision makers, agents, the senior managers play an important role for company performance, the interests of the shareholders anad future development of enterprises. However, due to information asymmetry and inconsistencies of the function of interests, the managers use the rights granted by the owner of the right to operate for residual control rights or residual claim graudually, to achieve their own interests in the company’s strategic decision. Jensen&Meekling. founders of Principal-agent theory, thought that as long as setting effective agent reward mechanism, we can make the targets of agent and principal consistent. But lots of evidence show that the rising speed of ceo’s compensation is far from the growth of corporate performance, since then the validity of the Return Performance contract has been questioned, as a starting point, this artical test the relations between the "internal control" and executive pay, pay performance sensitivity.Here we select1507listed companies in Shanghai and Shenzhen stock exchange as samples.Firstly, we make a descriptive statistical analysis for executive pay, the proportion of independent directors, managers, two jobs concurrently and manager’s representation in the Board of Directors, to characterize the status of internal control and executive pay in China’s listed companies.Then in the empirical analysis, through executive compensation regression model and remuneration performance sensitivity model, analysis the the effects of this four factors on the level of executive pay systematically. Finally, the manipulated variable, industrial concentration is introduced into our regression model.The paper is divided into the following sections:The first part of this study outlines the background o significance;The second part reviews existing research on the variables as well as the relation among them;The third part proposes the methods and model of this study based on the literature review. Meanwhile, it defines variables:The forth part carries empirical research to analysis internal control factors which affect pay and pay performance sensitivity. This is the core of this paper;The last part gives conclusion based on the empirical research findings, suggestions are supposed to be proposed towards the situation.Through empirical analysis, we get the following conclusions:(1) In the listed company, more duals, the control ability of the executives is more higher, thus higher pay levels, lower pay performance sensitivity.(2) The higher the proportion of manager in the Board of Directors, the greater Possibility that the Board is manipulated, thus higher pay levels, lower pay performance sensitivity.(3) The higher the proportion of independent directors, the lower the total remuneration of executives, the higher the degree of sensitivity of the performance pay. It shows that the independent director system does play a certain role in our country since its introduction.(4) All in all, Internal control positively effects executive pay, and negatively related with pay performance sensitivity.According to empirical results, at the end of the article, based on the angle of internal control we put forward three proposals, that is to say, perfect board structure, improve the incentive system for managers, and focus on solving the internal control problems in higher concentration industries, thus establish a compensation contract enables more effective functioning of the corporate governance model.The innovation of this paper is:Internal control is an important aspect of modern corporate governance, research at present are mainly concentrating on qualitative description. Empirical studies only focus on the relationship between internal control and corporate performance or internal control and executive pay, less study is on the insider control and salary-performance sensitivity. Therefore, this study can make up for this shortfall to some extent. In addition, this paper also proposed a comprehensive measure of internal control indicators-insider control degree, which is rare in previous studies.