Executives Compensation And Perquisite Consumption In The State-owned Holding Enterprises

Executives’ perquisite consumption in the SOE is widespread. Because of thedominance, absence of owners, controlling of insider in the SOE and ineffectiveness ofinternal supervision, coupled with perquisite consumption’s invisibility, no contractbinding and mandatory disclosure, perquisite consumption is far beyond the scope of“reasonable”, it is a excessive self-interested behavior and a kind of negative energy.Not only infringing on the interests of the stakeholders, this led to a serious loss of theSOE assets, even brought a high-level corruption phenomenon. After the state councilin2006guided the central holding enterprises’ perquisite consumption, in2009theministry of finance, ministry of supervision, audit office jointly set up a working groupabout perquisite consumption system reform of the SOE, and then in2011the localshould open “three public consumptions” according to the central, recently thegovernment issued the interim measures for the supervision and management of SOE’sperquisite consumption, as you see, the government is also trying to gradually adoptmeasures to supervise the perquisite. Excessive perquisite is a typical opportunistbehavior, a form of agency costs, and the compensation contracts is the most effectiveway to solve the principal-agent problem. To motivate executives by compensationcontracts can reduce excessive perquisite, help China’s economic transition period ofsystem reform in the SOE, improve the SOE corporate governance mechanism.This dissertation is based on the principal-agent theory, incentive theory and theanalysis of convergence hypothesis “interest”, selects2007to2010years A-share2086the SOE annual reports’ data, according to the short-term incentive monetarycompensation which includes basic salary and performance bonus and the long-termincentive equity compensation which is consist of MBO, to study monetarycompensation and equity compensation’s influence on executives perquisiteconsumption. The SOE is further subdivided into the central holding enterprises and thelocal holding enterprises based on the ultimate controller, the purpose is to explore theexecutives perquisite consumption’s difference in the SOE, each of the central and thelocal targeted to solve the issue of perquisite.This paper learns from Chen Donghua(2005)’s way to measure the perquisiteconsumption which summarizes the “pay the other related to operating activities cashflow” eight costs from the annual report in notes, on the basis of the internalcomposition, executives compensation is divided into monetary compensation andequity compensation, according to the nature of SOE ultimately control SOE are divided into the central and the local holding enterprises. We build the multiple linearregression models and use SPSS18.0software and EXCEL software for the empiricalresearch in the relationship between perquisite consumption and executives’compensation. Empirical results found that: first, the SOE executives monetarycompensation and perquisite consumption significantly negative correlation, executivesmonetary compensation in the SOE, although relatively lower than that in privateenterprises, but still have incentive effect, it can restrain executives perquisiteconsumption to a certain extent; Second, the SOE executives equity compensation isnegatively related to the perquisite consumption, but not very significant; The paymenttime of equity compensation is not long, incentive effect is not very significant, so onreducing perquisite consumption also has the very big rise space; Finally, the localmonetary compensation is more negatively related to perquisite consumption than thecentral’s, but the central equity compensation effect is better than local. Research resultsshow that in the SOE, using the compensation contract mechanism is very important toreduce the excessive perquisite consumption, to translate the recessive perquisiteconsumption to dominant compensation, to reduce the agency costs, to protectstate-owned assets, shareholders’ interests and to improve the SOE governancemechanism. At the same time, this article puts forward some policy suggestionsaccording to the research conclusions, which mainly include raising the SOE executivescompensation, using the combination of monetary compensation and equitycompensation, reducing the government’s administrative intervention of compensation,this has a long-term and beneficial influence on reducing the perquisite consumption,increasing the interests of the shareholders, the smooth transition of SOE; Secondly, thecentral primarily use equity compensation to incentive executives while increasemonetary compensation, and the local at this stage is mainly to improve monetarycompensation, there’s a difference in solving the problem of perquisite consumption,“suit the remedy to the case”. The SOE’s health thrive is backed by the people’swell-being, supporting the national economy rapidly took off, leading China’s standingin the world is strong Lin, healthy body is the capital of the revolution, pure andperfecting market mechanism, strengthen the internal and external supervision, usingtransparent salary instead of hidden corruption perquisite consumption, are critical forthe SOE and our country.