Fair Value Measurement, Business Performance And Management Compensation Contract

On February15,2006, china has issued to use fair value accounting for the biggest highlights of the Enterprise Accounting Principle system; this is reflected in the fair value of China’s convergence with the international commitment. However, in the very act of carrying out Enterprise Accounting Principle by Chinese accounting circles, the serious financial breaks out in America and leads to the tremendous controversy on Fair Value Accounting Principle. The involves and influences are highest since50years of bringing forward Fair Value Accounting Principle and putting it in practice by American accounting circles. At the same time, in recent years the senior managers of listed companies pay has been much public discussion, the voice of people questioned focuses on executive salaries, whether match to their contributions, whether bring to the company’s excellent performance. This paper will combine the two subjects, study of fair value measurement in the role of management compensation contract, that changes in fair values how to influence management compensation contract by corporate performance.Based on the literature review, this paper associates contract view with management compensation, especially corelational research between management compensation and business performance, then lets fair value and business performance and management compensation together to research.This paper chooses listed companies of Shanghai and Shenzhen stock exchange from2007to2009as research sample, which changes in fair value is not zero, then with the SPSS17.0statistical software to empirical analysis the impaction of Changes in fair value to executive compensation contracts.The conclusions as follow:first, to the company holding income from changes in fair value, between Senior management compensation and income from changes in fair value has a significant positive correlation, And its impact on management compensation significantly more than other surplus items. Second, to the company holding loss from changes in fair value, management compensation and loss from changes in fair value have no significant correlation. It can clearly be seen that incentive compensation based on corporate performance is an incomplete contract, although it has effect to total Performance, lacks of disciplinary mechanisms to sub-item of earnings, this may contribute to the management opportunistic behavior and self-interest motivation, enlarge enterprise risk. The third conclusion by further research, our listed companies’executive compensation has stickiness, and the "Rewards light punishment" to Changes in fair value increases stickiness, it may lead to executives capture private benefits in the process of distribution of corporate wealth.