The Research Of Enterprise Internal Control Defects And Rectification Disclosure Effect On Executive Pay

The enterprise is to give the investors a clear corresponding investment returns which is from this kind of mechanism and contract, the internal control is the product of this mechanism and contract. It appeared in order to promote the enterprise internal organization functioning, and to coordinate the interests of stakeholders. Enterprise top management is an important part of the enterprise internal control (enterprise management), and they are the most understanding of internal control and relevant stakeholders of executing the program. Executive compensation is a kind of effective means for the enterprises to incentive executives.Lately, there was a series of financial fraud cases such as Enron, WorldCom, CNOOC and event of "yinguangxia"、"wanfushengke" "xindadi" appeared at home and abroad, had given the stakeholders (include executive)a lot of economic losses. Those cases show enterprise has internal control defects and lack of related information disclosure, most of them originally may caused by top management errors or fraud, deteriorating as executives malicious fraud, and eventually led to the enterprise bankruptcy, investors losses and executives unemployment, loss and even jail time and a series of consequences. Therefore, the disclosure of internal control message is very important. The disclosure of internal control information can alleviate asymmetric information situation and the related social harm. Internal control information including internal control defects and internal control defects rectification. The disclosure of the internal control defects shows that enterprise has ability to find the internal control defects It is good for giving the social public a good image that enterprise can impartially evaluate the internal control defects, truly and completely disclosure the internal control defects. The disclosure of internal control defects let the whole enterprises know the enterprises has internal control defects, it is good for perfecting the system of internal control, and controlling enterprise internal risk, to further safeguard the healthy development of the enterprise, and promote the development of enterprise operating performance. The executive compensation will be influenced by the enterprise operating performance, enterprise operating performance increases, and the executive compensation will increase. The disclosure of internal control defects rectification shows that the enterprise has the ability to solve the defects of internal control, and this would help public to know that enterprise adopt a positive approach to solve internal control defects. The whole enterprise’act on disclosing internal control defects will improve the validity of internal control, reduce the management risk, and improve the efficiency of enterprise management.Also, it can promote the development of enterprise operating performance, further improve executive pay. Therefore, the disclosure of enterprise internal control defects and internal control improvement will effect executive pay.This paper uses the Shanghai and shenzhen A shares (not ST) financial data of listed companies from 2010 to 2014 as research samples, empirically test the relationship between enterprises internal control defects, the rectification and executive compensation. Research Findings:1. The disclosure of internal control defects in this year has a significant positive correlation effect on the executive pay in next year; 2.The disclosure of internal control rectification in this year has a significant positive correlation effect on the executive pay in next year.According to the research conclusion, this article puts forward the following Suggestions:To perfect the internal control system and executive compensation system, to establish the internal control system and executive compensation system with the combination of management system; To Strengthen the internal control system and the related training for executives and related personnel;To raise internal control awareness of company owner.to set up a sound system of internal control execution of the law, to strengthen the penalties, legal, the barriers;Strengthen the information disclosure of internal control theory and the study of the theory of the executive compensation system, to use the the theory to guide practice.