The Power From Executive And Relative Performance Evaluation In Contract Of Compensation

Executive compensation has been a focus for the public. Since the financial tsunami leaded by United States sub-loan crisis, the behavior the Wall Street financial executives distribute bonuses and dividends distribution without scruple push themselves into bad situation. There also exist some problems in Chinese executives compensation contract. Especially,the salary in state-owned enterprises hugely influents the distribution of income in China. With the bigger and bigger gap of income in our country, protests are accumulating.the government has introduced policies and regulations for executive compensation of state-owned enterprises where the performance is needed compared. In this context, inspection of the actual effect of management of executive compensation in China is very meaningful. We need to test the existence of Relative Performance Evaluation in Contract of Compensation.Relative Performance Evaluation Hypothesis is logic, in which introduction of the performance affected by common external reference will eliminate external noise. The method can gain more accurate information about contribution executive have made and make more effective incentive. Making compensation contract model on the basis of relative performance, Chinese and foreign scholars derived the method can make Pareto improvement in solving the agency problem. This paper accept the hypothesis and make some explore on this basis. Beside the power from executive has a tendency to grow, on the other hand the restriction mechanism of power lags far behind. So the use of Relative Performance Evaluation may be Limited by the power.According to the theory of optimal compensation contracts and the empirical conclusion the power from executive affecting the validity of excitation, this article test if the hypothesis of relative performance evaluation exisits in Chinese executive compensation contract, and on this basis further explore how the power from company executive influences the use of the relative performance evaluation. We use4715sample data of943companies from2007to2011, finding that there is obvious evidence of relative performance evaluation in Chinese executive compensation contract.In addition, variables of power has a negative correlation with the comparative effect.The establishment of relative performance reflects the evaluation compensation reform in China has made certain achievements with the the reform of the market for many years. At the same time, we find power from company executive weaken negative relationship between the salary and relative performance. Reviewing the existing studies, little study the relationship between power and relative performance evaluation where they pay more attention on the existence of hypothesis. The conclusion of this paper give us some tips: compensation contract itself as solution to solve the agency problem will lose its use of Supervision and encouragement because of the Interference of executive power. So In order to improve the effectiveness of incentive,the compensation must ensure its independence and authority.