Social Connection、Compensation And Firm Performance

As the leader of modern company, CEO makes a significant difference according to their decision and governance. For a CEO, Management skills and high-quality information are keys to the right decision.In the governance structure with separation of ownership and management, CEO always has a good management skill and social relations to create value for the company, and CEO gets paid more as the collateral reward.This paper studies the compensation of the CEO from listing corporations to find out the relations between their social connections, company performance, as well as traditional executive human capital. The value of this study lies in the separation of CEO’s social capital and human capital. Furthermore, it also aims to find reasonable social factors that affect executive compensation to provide a reference to the compensation committee by optimizing the design of remuneration structures.By combining theoretical analysis and empirical methods, we study the various pay under different social relations. Samples of companies and CEOs are chosen from year2009to2011. Firstly, decompose the social relations into political and non-political ones, and then test the different impact of CEO payment. Secondly, in accordance with status of company, we find there are different influences to the CEO’s compensation. Last but not least, through the OLS test between CEO’s social connection and the firm’s performance we expect to find if there are some relations between CEO’s social connection and firm value, and if it will bring more compensation to the CEO.In this paper, there are evidences that significant positive correlation exists between CEO’s compensation and social connection, whether it is political or non-political. However, as for different companies, the influences also vary. Central enterprises and private enterprises pay more attention to non-political relationships (business relationship), while the local state-owned, either interior or outside the enterprise, CEO can raise their own wealth through its long-term social relationships locally. Above all, we find that CEO’s social relationships, especially political relations, could not bring significant benefits for the firm.The main innovation of this paper is to comb through senior personal information, from both political and non-political dimensions of social relations agency executives to build the index, and through the assignment of indicators to determine the size of their social energy. Next, according to the listed company also conducted research into the nature of the sample central level, local state-owned enterprises and private enterprises respectively. The Main innovation of this paper is to elaborate different kinds of social connection of chief executives from two aspects, political and non-political. Based on this we built an index of the executive’s social relations. Then we distinguish the company by their ownership status, which are divided into central state-owned enterprises, local state-owned enterprises and private enterprises, respectively, and we find the different preference.