Study On The Relationship Between Executive Compensation And Corporate Performance In China

Executives are decision-makers of the listed companies, they have important influence inthe corporate developments. Effective executive salary system can reduce the contradictionbetween the executives and company owners, and can make the executives more active, so asto promote the performance. The study of the impacts of executives’ payment can make thedesign of salary system reasonable, and to stimulate the executives, promote the improvementof corporate performance of listed companies, and finally to realize win-win situation.This paper studies from two aspects of theoretical analysis and empirical research onexecutive compensation effect on corporate performance of listed companies. Bysummarizing and analyzing domestic and international documents, and sketching theprincipal-agent theory, the three theories of human capital theory, incentive theory, and theproperty rights theory, this paper analyzes the relationship between executives’ payment andcorporate performance and the current situation of the two. The paper selects11relevantindexes from four aspects: development, operational capacity, solvency, profitability of thecompany, using PCA to extract the six principal components from the selected financialindicators, multiplies each principal component by its proportion of total variance, sums thenumerical value and then divided by the total variance contribution rate of the principalcomponents, then gets the principal component aggregative model to describe the corporateperformance. In this paper, a study has been taken on the2010－2012annual report data oflisted companies, making the proportion of shares held by executives and executive paymentas the independent variable to construct the regression equation. The study found that there isa clear positive correlation between the proportion of executive compensation and executiveownership and corporate performance, and there are some problems in the company executivecompensation and shareholding ratio. Finally, propose some countermeasures to improve theexecutive compensation system of listed companies which to improve business performance.