The Impact Of Senior Executives’ Compensation On The Bank Performance Of China’s Commercial Bank

Modern banking is a high risk, knowledge-intensive service industry. These industry characteristics decided that talent is the core capital of the bank. Highly qualified personnel determine the bank’s international competitiveness.It is significant to the commercial banks to inspire staff enthusiasm to improve operational performance.With the end of the five-year protection period after China’s accession to the WTO at December11,2006, foreign banks entry the Chinese banking area to carry out RMB retail business.There is competition between foreign banks and China’s banking in business areas and attracting talent, especially for the senior management staff. After the joint-stock reform of China’s commercial banks, these banks gradually establish a modern corporate governance system. Accordingly, the bank executive compensation gradually change from the "eating the same big pot" to a business performance linked wage system.Compared with perfect pay incentive system in foreign banks, China’s commercial banks have single executive compensation structure—mainly short-term incentives and the lack of long-term incentives. The difference makes a lot of staff quit from the local banks to foreign financial institutions every year.In recent years, the corporate governance system of China’s commercial banks changed through the introduction of strategic investors or IPO.However, with the outbreak of the international financial crisis, the executive compensation incentive mechanism of China’s commercial banks are exposed not conducive to the sustainable development of the banking.In order to response to public accusations and to ensure the sound development of the banking,China’s Ministry of Finance and the China Banking Regulatory Commission issued<the notice about the executive compensation allocation in state-owned financial institutions in2008>and other guidelines.This guidelines increase the regulation of financial executive compensation to improve the financial institutions executives incentive mechanism.In this context, the article select the impact of executive compensation to bank performance of China’s commercial banks as research content, using a combination of theoretical analysis and empirical analysis.The principal-agent theory is the theoretical basis of this paper. This article uses the principal-agent model to conduct a general analysis of the relationship between executive compensation and business performance, paving the way for the current situation analysis and empirical analysis behind. This paper analyses the characteristics presented by the executives of commercial banks in China and bank performance after determining executive compensation and bank performance indicators, combined with data. Based on the analysis, assumption of this article is posed.In order to test the hypothesis, an empirical test of the impact of executive compensation to bank performance of commercial banks in China is raised.Taking into account the different bank ownership structure,this article will divide the samples into two groups——state-controlled commercial banks and non-state-controlled commercial banks.Finally, considering the theoretical analysis、current situation analysis and empirical results, this paper present recommendations to improve executive compensation system in China’s commercial banks.