Research On The Influence Of Institutional Investors On Management Compensation

Since the1980s, the rapid rise of institutional investors in the global scope, hasgradually developed into a leading force in the capital market. With the growing scale ofinstitutional investors, its participation in corporate governance has also undergone asignificant change–from the "vote with their feet" mode gradually transformed intoactively participating in corporate governance mode. Compared with individualinvestors, institutional investors with funds, profession and various advantages ofaccessing to information, so they should make full use of their own advantages, andactively participate in corporate governance, which play an important role in perfectingcorporate governance structure.The advancement of modernization brought more challenges to the companymanagement, time, knowledge, energy and other objective conditions restrict the ownerwillingness to participating in corporate governance, in order to better carry out themanagement of the company, the owner have to hire the relevant personnel toprofessional management of the company, the resulting two rights separation ofcorporate ownership and control, this separation may cause managers out of self-interestto sacrifice the interests of the owner, thereby increasing the company’s agency costsand generating commission agency problem. Management compensation as animportant part of corporate governance, is not only the starting point to solve theproblem of principal-agent,but also an important aspect of institutional investorsparticipating in corporate governance. So institutional investors should be with itsshareholders’ rights to executive compensation mechanism constantly tend to be morereasonable and effective, leading to senior executives make decisions consistent withshareholder interests.This paper combines the normative research method and the empirical researchmethod together. In normative research part, this article from institutional investors incorporate governance, management compensation and compensation performancesensitivity three aspects has carried on the induction and summary to the relatedliterature at home and abroad, meanwhile the theoretical basis、 motivation、methodsand effect of institutional investors affect executive compensation are analyzed, andbased on this, advances the research hypothesis. In empirical research part, this paper selects2009-2013Shanghai and Shenzhen A-share listed companies whice haveinstitutional investors shareholdings as samples,overall institutional investors inresearch on management compensation effect, on the basis of reference to Brickley etpoint division is made for the institutional investors, discusses the heterogeneousinstitutional investors shareholding different influence on management compensation.Through the research, we get the following conclusions:(1) the overall institutionalinvestors shareholding with the company’s management compensation andcompensation performance sensitivity have significant positive correlation.(2) thepressure resistance type of institutional investor shareholding and corporatemanagement compensation and compensation performance sensitivity have significantpositive correlation.(3) the pressure sensitive institutional investor shareholding andcorporate management pay and there is no significant correlation between the payperformance sensitivity. Based on the research conclusion,this paper put forward policyrecommendations to perfect the laws and regulations, integrating the companyownership structure, cultivating corporate governance concept, optimizing the structureof institutional investors, in order to guide the institutional investors to adopt a morepositive attitude to participate in corporate governance, to improve the managementcompensation mechanism play an important role.