Internal Controls, Executive Compensation And Corruption Control

The two hot spots of today’s society is "the astronomical salaries"and "theexecutive corruption".Not only is it related to the fairness but also to the formation ofsocialist core values and building society’s harmony. In fact, however, leaving peopledissatisfied, one side is daunting astronomical salaries, one side is a blatant corruption,disputes arising from the academic system "high salary".Using a sample of Chinese listed firms over the period2007-2010, we dividedthe executives corruption into explicit and implicit corruption, we investigated thatwhether the manager’s high salary can bring honest depending on the nature ofproperty rights. Then we investigated the impact of the internal control to the systemof “High Salary for Clean Government”.The empirical results show that:(1) For the explicit corruption, high salary canagainst corruption. But this the effect of high salary for clean government depend on asound legal system, stringent monitoring mechanisms, as well as an effective managermarket and effective corporate governance mechanism and internal controlmechanisms. In addition,because state-owned enterprises have innate kinship with thegovernment, this “high salary for clean government” effect is weaker than thenon-state-owned enterprises;(2)For the implicit corruption, high salary cann’t againstcorruption. Implicit corruption mainly table extravagant Non-PecuniaryCompensation, which does not belong to illegal activities.Therefore can not play“high salary for clean government” effect with the legal means. In Chinese listedfirms, there are some disadvantages, for example the “Owners’ Absence "bringsinternal person control and “dominance” in the shareholding structure, which maylead to corporate control is transferred to the hands of the management, so managershave sufficient power to determine their own pay levels, and have the same power todetermine their own non-pecuniary consumption levels.Therefore High salary andimplicit corruption often have a positive relationship. This positive relationship is stronger in the atate-owned enterprises.(3)Along with improving the quality ofinternal controls, For the explicit corruption, whether in state-owned enterprises or inthe non-state-owned enterprises will strengthen the "high salary for cleangovernment" role.(4) For the implicit corruption, the high quality of internal controlweaked the positive relationship between the high salary and implicit corruption, butin the state-owned enterprises doesn’t have the weakening role, in a non-state-ownedenterprises this role is very obvious.