The Effect Of Managerial Power On The Relationship Between Enterprise Performance And Executive Compensation

With the separation of operation right and ownership, how to lead to the agreement in the interests of the owners and operators has become an important topic for enterprises to obtain a long-term development. According to the optimal contract theory, executive compensation and corporate performance has a positive correlation. However, compensation is not related to corporate performance, which has obtained the extensive attention of scholars. Since China’s reform and opening up, in Chinese market economy, private enterprises obtained the rapid development. Private business owners,as the core of the senior management teams, is the private enterprise decision-making center, especially in the enterprises important strategic decisions. At present our country private enterprises, the high executive power easily lead to self-interest behavior of operators.Executive compensation has been a controversial topic. This article is based on the development of Chinese private listed companies, adopting various new variables, such as total pay of all the executives, from the dynamic perspective "managerial power&business performance&Executive compensation ", through the designing managerial power index, texting applicability of "optimal contract theory" and "managerial power theory" in China to prove that executive pay has become a part of the problem of agency, and to show whether executives use their power to have positive influence in drafting compensation, based on the empirical evidence, then we can perfect the incentive mechanism of China’s listed companies. Based on the data of Chinese private listed companies from2008to2011, the study found that executive pay is positively related to the accounting performance, and weak correlation with market performance. Therefore, executive compensation contracts based on business performance is not related to the real corporate performance. In terms of contribution of managerial power in executive compensation, managerial power and the executive pay is related. With the increasing of the management power, the executive pay is larger; Compared with other companies, in private enterprise with relatively high management power, executive compensation and corporate performance correlation is higher. In terms of profitability performance and executive compensation, and its correlation with loss, the model2test results show that when the private enterprise executives improve accounting performance by earnings management, accounting performance and management of power coefficient is significantly positive, which executives use managerial power to improve the accounting performance and executive pay, also executives use its power to reduce the loss of performance of the negative impact of the compensation. In terms of earnings management, according to the descriptive statistics of Rigging performance, executives in private enterprises have rigged accounting performance. Overall, the rigging performance itself on executive pay will have a positive impact. In the enterprise with lower managerial power, the real performance’coefficient is significantly positive, in the management power of the larger enterprises, the coefficient is not significant, shows that the firms with lower managerial power have higher effective executive compensation contract. When the accounting performance and the rigging performance is positive, the correlation between Rigging performance and management of power coefficient is significant, therefore, executives use their power to improve the correlation between Rigging performance and executive pay.The research and innovation is mainly manifested in the following three aspects:First, the research object, research on executive pay Chinese scholars mainly concentrated in the state-owned listed companies or companies. While, there are many differences in growth process of private listed companies and state-owned listed companies, the power from market factors, which lead that two different types of enterprise executive pay in the formulation process shows its own characteristics, therefore, research on executive pay in Chinese private enterprises has a great importance; Second, the different levels of managerial power of private enterprises, ways in the managerial power of the influence of the compensation has certain difference. Relative to other companies, in the private enterprises with relatively high managerial power, executive compensation and corporate performance correlation is higher. Third, this paper confirms that private executives with managerial powers to improve their compensation. In private enterprises executive pay levels has been improved by managerial power directly, besides, executives improve enterprise accounting performance, than use their power to increase contribution of accounting performance on executive pay, and to reduce negative impact of loss on executive pay and to improve the contribution of rigging enterprise performance.