The Influence Of Accounting Standards Reform On Executive Compensation Contracts

China implemented the new "Enterprise Accounting Standards" on Januarylst, 2007. It updates the accounting concepts and specific accounting items, which influenced the accounting information content. According to the concept of contractual consequences by Jensen and Meckling (1976), stakeholders generally use accounting data as contractual basis. Thus, changing the quality of accounting information thereby will affect the corporate executive compensation contract.This paper studies the efficiency of executive compensation contract influenced by the accounting standards reform, from the viewpoint of the accounting information’s function in contract. At present, executive compensation contract is based on a "pay-performance" assessment model. The quality of accounting information including the accounting performance will directly influence executive compensation contracts. Based on our current assessment model of executive compensation contract, "the efficiency of executive compensation contract " in this paper refers to the degree of correlation between accounting performance and executive pay. The greater the correlation between them, the more effective the executive compensation contract will be. Effective executive compensation contracts can better utilize the accounting information available to measure the efforts and results of executives. When the quality of accounting information changes, the company will make timely adjustment on executive compensation contracts, changing the weight of accounting performance in executive compensation contracts, in order to improve the efficiency of executive compensation contract. The new accounting standards introduce fair value measurement, and update a number of specific accounting standard items. It should be to maintain the executive compensation contract fairness and improve the efficiency of contract. However, at the same time, The new accounting standards also leave earning management space to the management.Therefore, this paper discusses after the accounting standards reform, the correlation between executive compensation and accounting performance, and studies the adjustment of executive compensation contracts in the listed companies of China, which will enrich the research of contract consequences of accounting standards reform, and for research in the field of corporate governance may be a certain theoretical and practical significance.Different from previous research using "executive" as a overall concept, this paper studies the position difference of CFO and CEO, and inspects adjustment of each compensation contract. The introduction of fair value measurement, makes "changes in fair value gains and losses" a new part of accounting performance, and increases the infonrmation content of accounting performance. In general, the CFO is responsible for the enterprise’s capital operation, the compensation has more relevance to changes in fair value; CEO is responsible for the enterprise development strategy, and the construction of enterprise culture, so CEO has few responsibilities for short-term investment of assets or liabilities, so compensation contracts have low correlation with changes in fair value gains and losses. Thus, after the accounting standards reform, in the CFO compensation contracts, the adjustment of accounting performance including the changes in fair value gains and losses, is greater than the adjustment in CEO compensation contracts.Using the A-share listed companies from 2005 to 2013 as sample, this paper discovers that, in general, the accounting standards reform improve the correlation between executive compensation and accounting performance, thus improve the executive compensation contract efficiency. By looking up the annual report of listed companies to collect the CFO and CEO pay information, this paper finds that the improvement of compensation contracts efficiency is more obvious in CFO compensation contracts than that in CEO’s. According to the discovery, it shows that when making executive compensation contracts, listed companies can effectively distinguish between different executive responsibilities, and make effective executive compensation contract for management.The contribution of this paper lies in:firstly, previous articles regarded executives as a whole concept roughly, this paper differs from that and through manual search of CFO and CEO annual monetary compensation in listed company,from the perspective of individual executive, to research the efficiency of compensation contracts, which is advantageous to refine research about accounting standards reform on efficiency of executive compensation contract, and for the areas of corporate governance and contract makers to provide more detailed and accurate evidence; Second, from the point of sample interval, the relationship between executive compensation contract with the company’s performance is a process of dynamic adjustment, the accounting information quality has a direct influence on the relations, most previous research has ignored the turning point of accounting standards reform. Since the accounting standards reform will directly affect the information content and quality of accounting performance, and further influence the weight of accounting performance in the executive compensation contracts. Therefore this paper selects A-share listed companies in 2005-2013 as a sample to make a research, which can enrich the study on the contract consequences of accounting standards reform. Third, from the research perspective, current studies of accounting standards reform most focused on the quality of accounting information and earning management, and the research achievements of contract effect of accounting information is less. This paper based on the perspective of accounting information’s contract consequences, discusses the changes of accounting concepts and some specific accounting items,which has impacts on the executive compensation contracts based on accounting performance, this will also be conducive to expand the current studies of economic consequences of accounting standards reform.