Managerial Power, Performance Change And Compensation Gap

Recently, Chinese state-owned enterprises high salary issues become make public. At the same time, Gini of China is nearly 0.5 in 2014 years up from before 0.2 in 1992 years, has exceeded the international warning level. More and more public feel unfair, and the compensation gap in state-owned enterprise has become increasingly prominent. Since 2004, the government issues a series of compensation limit order, through legal regulation and supervision to control executive compensation and the problem of ineffectiveness incentive in owned-enterprise compensation. In theory, the reasonable compensation contracts can reduce agency cost. But in the real market, some problem, for example external environment weakness, the management of state-owned enterprises is likely intervening important decisions; affect the independence of the board of directors. It is has a result that the assumptions of optimal contract theory is broken and greatly shorten effectively. So we deeply analyze reasons of high executive compensation and link between compensation and executive behavior, to explain some problem about the compensation contract and compensation gap.Through the browse massive existing papers and theories, we find the managerial power theory can explain the reason of compensation contract ineffectiveness, it’s opinion is when the managerial power is too large, the executives has a power to influence the design of compensation, compensation contract will become one of the ways of managers self-seeking behavior. Both of remuneration of government regulation and state executive compensation restrictions will stimulate the executives justify compensation needs, executives will justify “fair procedure” and “fair result”. Managerial power theory is based on the perspective of management behavior, to study the influence of executive compensation. Justify compensation will also affect the executive behavior. Therefore, making justify compensation hypothesis integrate into managerial power theory, we can further explaine the behavior of management in the executive compensation justify demand point of view; research the problem about salary incentive and the executives behavior.At now, researches about justify compensation hypothesis has just begun and the conclusion is less. There are some researches about employee compensation, but they are not yet reached the same conclusion about managerial power’s influence.So we research on managerial power, executive compensation, employee compensation, compensation gap with state-owned corporation data in 2009-2013 years and do an empirical test. There are some results are as follows:①In China state-owned enterprises, executives compensation is significantly positively related to managerial power, ordinary works compensation is significant negatively related to corporate performance. ② As performance change, executive compensation performance sensitivity is different. When performance well, executive compensation performance sensitivity is higher than performance bad, which is because of state-owned enterprise executives justify compensation. And Managerial power to promote affect executive compensation performance sensitivity, which indicating greater managerial power have stronger justify compensation demand. ③ As enterprise performance better, as compensation gap bigger. Especially in enterprise performed well. Managerial power can promote the state-owned enterprise compensation gap in performance fluctuations.