Study The Impact Of Relative Performance Evaluation On Executive Compensation Of Listed Companies

With the development of Chinese economic, the separation of ownership and the right of operation has become a major business model of the modern enterprise operators play an important role for the development of enterprises in this model.The shareholders are the owners of enterprises, executives are the operators, the separation of ownership and the right of operation is easy to make information asymmetry, causing deviation of owners’ and operators’goals. In order to promote the goals to consistent, we need to formulate a good compensation incentives system which can constrain the behavior of executives, the good compensation incentives system needs to be built on the performance evaluation that reasonable and objective, to consistent with the company goals, the executives compensation should be linked with company performance. Today, business environment is changing rapidly, the performance of company is impacted more and more seriously by external changes, in the condition, making a performance evaluation which is fair, objective and accurate, is the problem that to be solved by Relative Performance Evaluation.Using the theory called Relative Performance Evaluation, this paper compares the indicators of every company performance with the average of industry and obtains the indicators of Relative Performance Evaluation, to remove the influence to executives performance of external common uncertainties, reduce the systemic risks which are uncontrollable and assumed by executives, Relative Performance Evaluation can more accurate and objective when evaluate executives efforts, and work out the compensation system with more incentive.In order to study the impact of Relative Performance Evaluation to executives, compensation in Chinese listed companies, making use of data of textile and clothing listed companies during2007-2011and the method that regression analysis for empirical research. The result presents that the executive compensation of textile and clothing listed companies references the indicators of Relative Performance Evaluation, there are some evidences for application of Relative Performance Evaluation.In order to studay the indicators of Relative Performance Evaluation wether exist difference between different executives.According to responsibilities, executives are divided into two types:the executives of type I are responsible for the business plans of company, investment programs and setting up internal management institutions; the executives of type II are responsible for the operation and management of companies, meanwhile, they are in charge with increasing the value of assets, regard the operation and management of companies as their missions. Studied for the compensation of the two types executives and found that the indicators impact the executive compensation of type I and type II:RRET and RROA have the positive correlation ship with executive extra compensation of type I; RROA and RROS have the positive correlation ship with executive extra compensation of type Ⅱ; the condition of assets only impacts executive extra compensation of type I.The nature of ownership has significant influence to the both types, but the influence of company location is not obvious. Based on the findings, this paper proposes suggestions to Relative Performance Evaluation and the executive compensation system, to provide basis for further perfect the incentive system.