Rent Extraction And Executive Compensation Of Central Listed Corporations

Under the optimal contracting approach to executive compensation, which hasdominated academic research on the subject, pay arrangements are set by a board ofdirectors that aims to maximize shareholder value. In contrast, the managerial powerapproach suggests that boards do not operate at arm’s length in devising executivecompensation arrangements; rather, executives have power to influence their own pay,and they use that power to extract rents. Executive compensation is an importantcorporate governance mechanism, it has always been considered to solve the agencyproblem, recent studies abroad show that executive compensation arrangementdoesn’t necessarily solve the agency problem.In contrast; it may be a source ofagency problems. Managerial power approach leads the study of executivecompensation to a new area. The subject of rent extraction focused more attention.Inrecent years; executive compensation is increasing year by year in CentralCorporation. Executive compensation of Central Corporation is topical andcontroversial, accordingly receiving considerable attention by scholars. Whatdetermined the pay, is there any rent extraction, this entire question worthy ourattention. We investigate whether rent extraction explains executive compensationlevel in Central Corporation. We do so by examining whether the managerial power isthe determinants of executive compensation level, and then explore the relationshipbetween predicted excess compensation and firm performance. Our results suggestthat managerial power is significant determinants of executive compensation. At last,we choose information technology industry as example, compare the differencebetween central corporation and other corporation, find that in central corporation,rent extraction is serious than other corporation.