Board Structure, Executive Compensation And Corporate Performance

At present, issues of executive compensation of Chinese listed companies still attract a lot of attentions. The executive compensation has aroused widespread controversy as the annual reports of listed companies are disclosed every year. According to the ranking list of executive compensation in 2013, Chongwu Zhong, the chairman of Fangda Special Steel of Science and Technology Company is the top in the list with annual pre-tax salary of 19.7354 million yuan, followed by Shi Wang(15.9 million yuan) who was the NO.1 in 2012. The gap between the champion and second place was 3.8354 million yuan. However, from the standpoint of corporate performance, the net profit of Vanke A was 26 times than that of Fangda. In addition, the growth rate of net profit of Fangda Special Steel of Science and Technology Company was 7.5%, while the annual salary of Chongwu Zhong in 2013 was increased by 30% compared to that in 2012. It indicates that the executive compensation of listed companies in China is not consistent with the corporate performance. The corporation law in China stipulates that the board of directors is authorized to hire and fire the managers and decide their salary, which demonstrates that the supervision by board of directors makes a significant impact on the executive compensation. Generally, private listed companies in China are relatively smaller, restricted by capital and ability of shareholder, and are more prone to cause the problem of asymmetric information problems. Therefore, corporate governance is a more prominent issue. Therefore, this paper selects private listed companies as research object, and aims to research the relationship between board structure, executive compensation and corporate performance. It not only helps to solve the issues of corporate governance and executive compensation in private listed companies in China, but also improves the performance of enterprises, as well as promotes development and improvement of corporate governance theory and executive compensation mechanism.On the basis of former literature, this paper takes relevant data of private listed companies of Shanghai and Shenzhen stock market from 2009 to 2013 as our research sample, which collected from the database of CSMAR. The methods of descriptive statistics and the multi-dimensional linear regression are employed to test the relationship among board structure, executive compensation, and corporate performance. The corresponding suggestion deduced from the research findings shows that the board structure of private listed company is positively related to the executive compensation. In detail, the proportion of independent directors, scale of the board, chairman and general executive dual situation positively correlated with the executive compensation. Additionally, there was a positive correlation between corporate performance and excess salary caused by the board structure.In view of aforementioned findings, this paper presents the following suggestion regarding the construction of board and system of executive compensation: increasing the independence, professionalization and enthusiasm of the independent directors; optimizing leadership structure of the board by separating the function of the chairman and general manager; establishing a rational evaluation system of executive working; introducing penalties toward executives reasonably; strengthening long-term incentives for executives and adding spiritual incentives appropriately.