Study On Relationship Of Managerial Power, Institutional Investors’ Ownership And The Efficiency Of Compensation Contracts

The performance-based compensation contracts can keep the interests betweenshareholders and managers, reduce the principal-agent problems. It is considered toconform to the characteristic of “optimal contract perspective” to some extent.Compensation performance sensitivity as an important part of core issue of “optimalcontract perspective”, also become a hot research. The higher compensationperformance sensitivity is, the effectiveness of the compensation contracts. Anincreasing number of empirical evidence indicates that top management compensationis significantly positively related with performance, and the compensation performancesensitivity is gradually higher. It seems that companies have gradually established theperformance-based compensation system. But with the heat on executive pay attention,"day price" compensation and other compensation scandal greatly challenge theauthority of the optimal contract theory, the effectiveness of the compensation contractsare broken. And at this time, the theory of "managerial power perspective" is appeared,by using the compensation that is set by the managers to the executive pay huge issuegiven the explanation. The theory is that the compensation contract which represent isanother form of the problem can’t solve the agency problems.At present, the listed companies have a very significant feature that the“shareholder absence", and control gradually shift to the management. The transfer ofpower has made the managerial power constantly rising. Coupled with the imperfectcorporate governance mechanisms, such as the board of directors supervision functionweakened, equity incentive mechanism is not sound, small shareholders influenceability, and the executive compensation disclosure system imperfect and so on, to speedup the internal control problems highlighted. So management can have enough power,to achieve the goal of decide their own compensation. On the other hand, institutionalinvestors in the continuous development in recent years in our country, the nationalpolicy and accordingly give some support to its development, it can be activelyparticipating in corporate governance, to optimize the role of governance institutionsalso caused the widespread concern of scholars. So this article is based on compensationperformance sensitivity as the breakthrough point, in the framework of corporategovernance research on the management of institutional investors holding power and the compensation performance sensitivity relationship might affect.This article first from the principal-agent theory and stakeholder theory analyzesthe role of institutional investors on the basis of the transformation and participate incorporate governance. Then from asymmetry information, the optimal contractperspective and managerial power perspective to explain the motivation of managersuse power to get extra profits. Based on this, by selecting the samples of listed ShanghaiStock Exchange from2010to2013, and at last, make empirical analysis through theestablishment of model and assumptions. By choosing the chairman of general manager,dispersed ownership and executive long-serving three single indicators, as the researchvirtual variables to measure the power of the management, and thus calculate thecomprehensive index of measure management power. At the same time, joining thevariables of institutional investors, research the relationship of institutional investors,managerial power and compensation performance sensitivity. Then, using the cross itemof three variables to explore the institutional investors might impact on the relationshipbetween the managerial power and compensation performance sensitivity. Theconclusion shows that institutional investors’ ownership is positively related to thecompensation performance sensitivity, and managerial power is negatively related to thecompensation performance sensitivity. But institutional investors’ ownership can’trestrain the managerial power to protect the compensation contract effectiveness. Basedon the research conclusion, the article in the last from strengthening the managementequity incentive, optimization of performance appraisal system, strengthen theindependence of board of directors, expand the scale of institutional investors, enhanceshareholder on the voice and establish the executive compensation disclosure system tooptimize the governance structure, constraint management power and encourage thedevelopment of institutional investors on the corresponding advice is given.The article based on the large framework of corporate governance, made thecompensation performance sensitivity as the breakthrough point, proved thatinstitutional investors’ ownership can actively participating in corporate governance, butstill needs to be improved, and provided evidence for the management of powerrent-seeking. This research can be ease principal-agent relationship, reduce agency costand improve the corporate governance has a certain help.