An Empirical Study On The Relationship Between Executive Compensation And Corporate Performance In Chinese Internet Listed Companies

The Principal-agent theory suggests that there are some problems betweenexecutive ofifces and shareholders of the company, such as interests inconsistent,information asymmetry, moral hazard and so on, senior management have anincentive to implement policies which could maximize their short-term interests,but it undermines the long-term interests of outside shareholders and thecompany. Therefore, in order to avoid this risk as possible, the shareholders ofcompany will give more short-term salaires and grant more long-term options toexecuti’ve officers to bound senior managements interests with futureperformance of company together, which could increase the opportunity cost ofadverse selection. The phenomenon is more piominent, especially in the Internetindustry On the one hand, the internet industry is an emerging industry, withcharacteristic of rapid growth, good outlook and high return, but alsoaccompanied by high risk, so we must give high enough remunerations toexecutive oiffcers so that they arc willing to make investment in high-irsk’projects. On the other hand, now the internet market of China isnt matureenough and the internet business is still in the growth stage, at this time, weneed more wisdom of senior management team to lead company sneak, whichrequires long-term incentives to make executive oiffcers interests consistentwith ’companys long-term performanceThis article started a point in the review based on the results of previousstudies, using the relevant data ranged from2009to2012of23Chinese internetcompanies that listed on Nasdaq as samples. Using method of empirical analysisand tool of Eviews6.0to test the relation’ship between executive ofifcersshort-term salaires and company performance, the relationship betweenexecutive ’ofTicers long-term option grants and company performance,respectively, and make compairson.First, from the entire Internet industry, there is a significant negativecorrelation between executive offi’cers short-term salaries and company performance. But at company side, there are only9companies have asignificant negative correlation. It shows that short-term incentives in the formof currency for the entire Internet industry is ineffective, the increase of seniormana’gements short-term salaries is not conducive to enhancing the value of thecompany.Second, from the entire Internet industry, there is a significant positive’correlation between executive oiffcers long-term option incentive and companyperformance. And at company side, there are20companies have a signiifcantpositive correlation. It shows that long-term incentives in the form of stockoptions is effective and the increase of long-term salaries is conducive toenhancing the value of the company.Thi’rd, there are long-term effects between executive officers long-termoption incentive and corporate performance. It shows that the long-term optionincentive on corporate performance is sustainable.Forth, the size of Internet companies have a positive impact on corporateperformance and executive pay. Indicating that internet corporate can improveth’e companys performance through reasonable scale expansion, thus affecting’executive pay, its a virtuous cycle.