Chinese Listed Companies Banking Performance Sensitivity Of Executive Pay

In recent years, the problem of excessive and inappropriate executive incentives compensation system of some foreign banks is exposed after the occurrence of global financial crisis. This problem gradually attracts more attention of academic scholars and policymakers. Modern enterprises principal-agent problem stems from the separation of residual control rights and residual claims. How to make shareholders and managers have mutually compatible goals is a really important task. Designing performance-based compensation contracts has been considered as one mechanism to realize this task. The principal-agency theory indicates that pay system, an important internal governance mechanism, was originally regarded as a solution. The main purpose of pay system design is to minimize conflicts of interests, reduce agency costs and let shareholders and managers have close interests by reasonable and appropriate incentives. However, in actual operation, the pay system is not always able to function effectively.Chinese banking industry is still a government-protected industry and it enjoys monopoly profits by virtue of the high spreads. It can conditionally grant the executives high salaries. The high short-term incentives compensation often becomes the focus of attention. Based on previous literatures and related theories, this thesis purposes to conduct empirical analysis of performance-based compensation by utilizing data of16Chinese listed banks in period2005-2012. The empirical results indicate that compensation of listed bank top executives is sensitive to the performance and there exists the asymmetry of sensitivity of compensation to performance. The top bank executives’compensation has sticky characteristics. Finally, this thesis provides policy suggestions such as perfecting contract design of top bank executive compensation and improving governance mechanism.