Research On The Impact Of The Executive Compensation Equity On The Company’s Performance

Executive compensation of listed companies has been soared in recent years, and following phenomena occurred, such as the mismatch between compensation and work, the increasing compensation gap of different industries and groups, which deepen the public concern about executive compensation fairness. Fairness is an important principle of executive compensation design, it has a significant impact on the behavior of the individual, the company’s development and social stability. At present, the academic study of executive compensation fairness is mainly concentrated in internal compensation gap, but study from the perspective of external compensation gap is relatively scarce.Therefore, the paper considered it is necessary to study compensation fairness and its economic consequences, in order to provide relevant suggestions to further improve executive compensation system, so the company can set executive compensation level reasonably to improve the company’s performance.Based on previous study results and theoretical basis, this paper used combination by theoretical analysis and empirical research to analyze the impact of the executive compensation gap on the company’s performance from internal fairness and external fairness: Firstly, clarify the research background and significant, research ideas, content and methods of this paper; Then reviewed relevant literature and analyze the effect of internal fairness and external fairness of executive compensation on the company’s performance and the ownership property on the company’s performance, which is based on the definition and theoretical reference. After that,this paper proposed four hypotheses, defined variables and built the model.Reference to existing research methods, this paper used the compensation gap and the additionalcompensation as the measurement external and internal fairness of executive compensation respectively. This paper tested the proposed hypotheses through descriptive statistics analysis, correlation analysis and A-share listed companies from2010 to 2014. Through empirical research, this paper draw the following conclusions:First, the positive additional compensation and the negative additional compensation of the executive has a significant positive impact on the company’s performance,which is consistent with the equity theory, suggesting that the compensation incentive mechanism is in effect. Second, in line with the tournament theory, the internal compensation gap of the executive has a positive impact on the company’s performance. Third, the correlation between the positive additional compensation and the negative additional compensation of the executive and the company’s performance is affected by the ownership property, in non-state-owned listed companies, the positive additional compensation and the negative additional compensation of the executive plays a facilitating role on the company’s performance, while in state-owned listed companies, there is no significant correlation between the positive additional compensation of the executive and the company’s performance. The negative additional compensation plays a facilitating role on the company’s performance, but the influence is less comparing with non-state-owned listed companies.The main innovation of this paper is that considering all the executive, analyzing the information integrated by a variety of theories, discussing the influence of the executive compensation on the company’s performance from both internal and external,to avoid the partial and study in a more comprehensive way. However, the sample size still needs to be expanded, the index of executive compensation and fairness measurement still needs further perfection.