A Study Of The Effectiveness Of Internal Control Quality And Executive Compensation Contract

Compensation incentive system, especially the pay and performance links the pay system has become one of the most important way to solve the principal-agent problem of modern enterprises. Compensation performance sensitivity has confirmed by many scholars, and its relevance and sensitivity has been regarded as the indicator of the effectiveness of the compensation contract. However, based on the past researches,there are all kinds of bad phenomena in practice process of our country’s salary incentive system: some listed companies with loss-making but the executive compensation is still increasing; what’s more, the growth rates of some executives’ compensation far more than the enterprise achievement growth rates; also, the pay level of many executives even far from the normal. These phenomena indicate that the compensation incentive system has not been fully effective. Internal control system is to improve the efficiency and effectiveness of enterprise management, ensure the reliability of financial reporting and promote enterprise behavior in accordance with the relevant laws and regulations(COSO, 1992). On the one hand, the effective implementation of internal control can constrain the self-interest of the agents and supervise them to contract implementation effects, making the corporate business behavior more legally and improving the quality of the performances and profitability of the companies. On the other hand, in order to make the agents and their interests tend to be consistent, the clients can operate the performance and compensation as an incentive, and the rational agents who under constrained are willing to regard the performances as their rewards. Therefore, the study of letting the effectiveness of the internal control into the compensation contract may have a new finding of the salary system.According to this, on the basis of the past relevant researches and theoretical analysis about the China’s A-share listed companies empirical data in 2010- 2014,taking the profit performance, loss of performance and the nature of ownership respectively as the moderating variables to construct a panel data to find the effectiveness influence of the quality the high tube salary contract acted by internal control. These results of empirical study show that the internal control can strengthen the degree of executive compensation and the corporate performance of articulation,also remarkably improve the effectiveness of executive compensation contract.Specific performance in:(1) the quality of internal control is significantly positively correlated with the executive pay performance sensitivity;(2) internal control with high quality can alleviate the nonsymmetric state that the sensitivity of executive compensation performance under the profit performance and the loss performance;(3)compared with private enterprises, the internal quality control in state-owned listed companies about the effect of executive compensation contract is more significant,which means the high internal quality control is much effective to the state-owned enterprises than the private enterprises on enhancing the executive pay performance sensitivity and alleviating the nonsymmetry executive pay performance sensitivity.Finally, above all the empirical results, putting forward the proposal about the relevant policy recommendations of our country’s internal control system construction and the reform of the salary system, which gives an important enlightenment that using the internal control to promote the effectiveness of executive compensation contract of our country can really set up a modern enterprise system.