Compensation Regulation And Excessive Executive Compensations

Although the issued remuneration policies have emphasized the relevance ofexecutive compensation and corporate performance in recent years, the phenomenon ofexcessive executive compensations is still common. Some executives of state-ownedenterprises(SOE) acquired excessive compensations which is incompatible with thecompany’s performance, causing public resentment and doubt. So SOE reform has focusin the executive compensation system reform. In September2009, including Ministry ofHuman Resources and Social Security of the People’s Republic of China and other fivedepartments jointly issued the guidance on further standardizing the salary of managersin Central enterprises, aiming to establish executive compensation system according tothe management performance, and making the system more rational, standardized andopen. Meanwhile, due to the reform and opening policies, the influence of geographiclocation and development level, development imbalances between regions of ourcountry is inevitable. Regional differences in the marketization process is obvious, theeastern coastal regions with good geographic advantages and preferential policies havecompetitive markets and high degree of marketization, while the western regions is onthe contrary. The paper is based on the above research background, exploring the policyeffects of regulation of executive compensation in SOE, as well as policy differencesamong the regions.This paper takes the guidance on further standardizing the salary of managers inCentral enterprises in2009as research background, based on listed firms of SOE from2011to2013, offering supports to the policy effects of regulation of executivecompensation in SOE with normative and empirical methods. By controlling economicand governance factors which affect excessive executive compensations, having foundevidences to prove the validity of regulatory of executive compensation in SOE, whichrestrain the excessive executive compensations, demonstrating the Government’sposition in salary management of SOE.In order to test the effects of marketization differences on the relationship ofcompensation regulation and excessive executive compensations, this paper adds theinteraction terms of compensation regulation and marketization differences to the model,exploring the effects of marketization differences. The results indicate that the highdegree of marketization would ease compensation regulation’s restraint on the excessiveexecutive compensations. In the regions with high degree of marketization, market plays a more effective and important role in resources configuration, so the role ofGovernment will be weakened. While, political tournaments among local officials willmotivate them to loosen compensation regulation to win the tournaments, and then easethe effects between compensation regulation and excessive executive compensations.The results indicates that in the different parts of the marketing process, thecompensation regulation’s restraint on the excessive executive compensations issignificant different. The empirical result is an important argument to demonstrate theGovernment’s power, as well as the adjusting role of market forces.The main research contribution of this paper has following three points:(1)Provides new research perspectives for excessive executive compensations, whichfocuses on the external system environment such as regional differences andcompensation regulation, instead of traditional micro governance fields.(2) Exploresthe effects of compensation regulation on the excessive executive compensations;reveals the mechanism of Government intervention in enterprise governance; providestheoretical basis and experience evidence for perfecting the compensation regulation.(3)Considers the effects of market forces on the relationship of compensation regulationand excessive executive compensations; indicates the adjusting role of market forces;deepens theoretical cognition of market reforms and government regulation.