Comparison Of Executive Compensation For Listed Manufacturing Family Firms Between China And Germany

The family firms play an important role in the economic world, its unique operation model attracts many scholars’ attention. This study attempts to use the listed family firms in manufacturing industrial sector as an example, and follow the principal-agent theory, to explore the incentives of the executive compensation mechanism in family firms between China and Germany under a comparative model.This paper sorts 5 years statistics from 2008 to 2012 under a strict selection, then uses SPSS and SAS to analyze the data. A perfect compensation mechanism should be both incentive and restrictive. First, this paper analyzes the correlationbetween executive compensation and corporate performance. Then, it analyzesthe correlationbetween executive compensation and agency costs. Lastly, it analyzes the empirical results and offers some related proposals.This paper comes to the following conclusions:(1) Overall, the salary of executive is depends oncompany’s performance. In contrast, China’s salary shows more remarkable influence on financial performance than shareholder-return performance, Germany’s salary is depends on both financial performance and shareholder-return performance, its has a strong incentive effect.(2) The salary of executive is affected by the current financial performance in Germany, but shows no significant difference between current and former performance in China.(3) Overall, the executive compensation helps to reduce the agency costs. In contrast, The salary level, salary gap and shareholding percentage are advantageous in reducing family enterprise’s agency costs in Germany, only the salary level works in reducing the agency costs in China.(4) Neither China nor Germany is suffered from family self-interest tendency’s negative effect on executive compensation mechanism function. The more the family’ managers are in the executive board, the more negative adjustment effect will be on executive compensation mechanism function in China, but the more positive adjustment effect will be on executive compensation mechanism function in Germany.Based on the conclusion above, the paper suggests that, refer to the big advantage of German family firms, Chinese family firms could adjust and optimize the executive salary level, compensation structure and corporate governance structure to make full useof executive compensation mechanism to improve corporate performance and reduce the agency costs.