External Governance Environment, Industry Regulation And External Equity Of Executive Compensation

The big differences between regional and industry led to phenomenon about external equity of executive compensation. So, people pay more and more attention to the issue of compensation fairness. According to the financial statements of China International Marine Containers Group in 2013, with the condition of the company’s profit fell 47%, its President Boliang Mai still be the highest paid executives of state-owned enterprises by the earnings of $1.6 million, which puts the "executive compensation fairness" to the forefront of public opinion again. China is a vast country, since the implementation of market economy, the external governance, such as regional political, economic and legal environment is gradually having big gaps, which put different influences on external equity of executive compensation. It not allows us to ignore the effect of regulation on external equity of executive compensation of cross-regional.This research puts external governance environment, external equity of executive compensation and industry regulation in the same research system, combined with the optimal compensation contract theory, management theory of power, social justice theory, public interest theory, the theory of relative exploitation and other theories foundation for empirical analysis. Then, this paper establishes a fixed measurement model about external equity of executive compensation, selects 5337 listed companies from 2007 to 2012 data as study sample, calculates and gets the executive compensation degree of external equity. At the same time, the research lists ranking about the external equity of executive compensation of 31 provinces and cities in China (not including Hong Kong, Macao and Taiwan) and difference tables between the industry regulation and the non-industry regulation enterprise1 external equity of executive compensation. Then, this research analyzes the effect of the external governance environment (such as government intervention, factor market development, the level of law) on the executives positive extra compensation and the negative extra compensation. Finally, the paper uses empirical method to study the interaction that between the external environment and industry regulation how to influences on external equity of executive compensation.This research shows:first, the top-ranking of external equity of executive compensation in China is mostly economic development regions, and latter is the developed regions, the last is the backward regions. Second, by depicting 2007-2012 industry regulation and industry non-regulation enterprise external equity of executive compensation figure, this paper finds that external equity of executive compensation about industry regulation enterprise is superior to industry non-regulation enterprise and external equity of executive compensation has improved in recent years. Third, the external governance environment is positively related to the extra compensation of the executives, and has a negative correlation with the negative compensation of the executives. That is to say, good external governance environment can improve the overall level of executive compensation. Fourth, compared with the non-regulation enterprise, industry regulation enterprise strengthens the restrictions from external governance environment to external equity of executive compensation.