Manager Incentives And Performance For Twin Goals Of Efficiency And Livelihood In The State-Owned Enterprises

Since 1992 China has been on economic reform, with China’s entry to the WTO, the reform of state-owned enterprises reform and real estate reform as landmark events, a series of market-oriented reforms have established a solid foundation for China’s economic boom of the last decade. However, handy bonus brought in by state-owned enterprises reform chiefly in order to expand enterprise autonomy and increase profits retained is gradually picking exhausted, we have begun to reflect the original GDP in command and efficiency-oriented development model has come to an end. China’s SOE reform should advance towards two main goals:First, the efficiency goal of improving market structure, achieving the market system to make it more competitive and efficient, to make the market built on a more equitable basis; Second livelihood goal, namely how to make the state capital better benefit the nation. State-owned enterprises have undergone four stages, expansion of enterprise autonomy, ownership transition from management, to promote the establishment of modern enterprise system and deepen the state-holding stock company (especially listed companies) internal reforms. Over the past two decades, a single efficiency goal as the leading state-owned enterprise property rights reform unilaterally emphasized on economic efficiency, ignoring social responsibility of state-owned enterprises in the socialist system.When the market-oriented reform of state-owned enterprises advances into a new stage, it becomes a new issue for government regulators to consider how to make profitable state-owned enterprises take on a wide range of social responsibility. Early with the core of expanding the autonomy of enterprises and increasing profits of state-owned enterprises, the market-oriented reforms have gradually put considerable part of the ownership, control and access of assets transferred from the government to state-owned enterprises, especially to state-owned enterprise managers. This paper firstly lists the manager’s agent problems existing currently in the state-owned enterprises, including moral hazard, adverse selection, internal control, etc., and then use moral hazard model in incentive theory to study how to implement appropriate levels of incentives to SOE managers with premises that state-owned enterprises have been given two goals of efficiency and livelihood. Due to the dialectical relationship that exists between economic benefit and social benefit, respectively substituted or complementary, we discuss the sub-optimal costs for incentive for the state-owned managers to pursue economic and social benefits in the two cases, and conclude that Government, as a rational principal, in practice will make a comparison between incentive cost and total benefit, including both economic and social benefit, then decide the level of state-owned operators incentive for different situations. Then we select the appropriate efficiency performance indicators and livelihood performance indicators for the of state-owned managers’ incentive level empirical analysis, whose results show that a comprehensive reflection of the efficiency performance and social performance indicator, value of social contribution per share within the industry can be well explained by state-owned enterprises managers’ salary distribution. Finally, based on above model derivation and empirical analysis, some institutional recommendations are proposed to improve incentive system for the state-owned enterprise managers.