An Empirical Study On How External Fairness Of Executives’ Compensation Influences Corporate Performance

Executives’ incentive problem is the key and difficult points in the academic researchand the real world. There are rich and wide theoretical study and empirical research onexecutives’ compensation, but research from the perspective of fairness is not much.Research on the external fairness of executives’ compensation and its influence on themanagement behavior would become the important direction of research on compensationincentive theory. This study provided a new insight into the research of executivecompensation, and enriched the research content by discussing the external fairness ofexecutives’ compensation and the influences on the management behavior from themanagement psychology perspective. This paper not only presents empirical evidence onthe relationships between the external fairness of executives’ compensation and corporateperformance, but also provides the basis for making reasonable compensation plans andsome suggestions.Based on the literature search and theoretical analysis, we analyzed the relationshipsbetween the external fairness of executives’ compensation and corporate performance, andput forward four assumptions. Reference to existing research methods, this study uses theadditional compensation as the measurement of executives compensation’s externalfairness. We not only studied the cash compensation, but also executives’ shareholding.This paper applied the method of descriptive analysis, correlation analysis and simplelinear regression analysis to test the hypothesis proposed in this paper. The financial datafor empirical research is collected from Shanghai and Shenzhen A-share markets during2008to2011.The main conclusions of this paper are generalized as follows:1. positive additionalcash compensation and positive additional equivalent compensation provides significantand positive effect on the corporate performance.2. Negative additional cash compensationprovides negative effect on the corporate performance, but not significant correlation.3.There is a significant and negative correlation between negative additional equivalentcompensation and corporate performance. Then, based on the theories and the conclusion of positive analysis, this paper brings forward3policy suggestions. First, optimization ofexecutive compensation decision-making process, and improve procedural justice. Second,pay more attention to the fairness of executives’ compensation; bring the compensation’sfairness incentive effect into full play. Third, increase the transparency, adequacy andcompleteness of the compensation information disclosure; build the external environmentfor compensation fairness.