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

Building a scientific and reasonable incentive compensation to improve the enthusiasm and work performance of the executive thus to improve the performance of enterprises has always been the focus of attention. In recent years, the phenomenon of ―executive sky-high compensation‖ and pay inequity problems often appear in newspapers. The issue of executive compensation equity is increasingly being concerned. The issue of executive compensation equity can be divided into three aspects. They are individual fairness of executive compensation, internal fairness of executive compensation and the external fairness of executive compensation. At present, many academic theories are focus on the issues of executive satisfaction and the pay gap between executives and employees. However, few academics conduct an investigation into the external fairness of executive compensation. This article studies the external fairness of executive compensation and its influence on the management behavior. The purpose of this study is to enrich the content of external fairness of executive compensation and give some advice on the management of executive compensation. Ultimately enables enterprise to establish a more reasonable salary system and enhance the business performance.This study uses the combined method of theoretical analysis and empirical analysis to explore how external fairness of executives’ compensation influences the performance of listed corporate. First, review and summarize the relevant literature at home and abroad so as to analyze and compare the methods of domestic and foreign scholars. Then on basis of the principal agent theory, equity theory, the social comparison theory and tournament theory, combined with the actual situation of our country, I put forward the assumption of state-owned enterprises and non state-owned enterprises. In the empirical analysis, I select 782 companies in Shanghai and Shenzhen Stock Exchanges and collect the financial data from 2012 to 2014.The extra pay which is the residual of executive compensation decision model is used for measuring the fairness of executive compensation. Due to the limitation of the executive compensation decision model, the excess pay is divided into different groups. Therefore, this article studies the situation of equity and inequity of executive compensation to make the research more comprehensive and reasonable.Eventually this research gets the following conclusions. First, for the state-owned listed companies, both executive reasonable compensation and a range of positive external gap have a significant positive impact on the enterprise performance. What’s more, the negative external gap also has a significant negative impact on the enterprise performance. Some companies pay executives super high salary. The excess compensation does not have a significant positive impact on enterprise performance. Second, for the state-owned listed companies, the reasonable compensation has a significant positive impact on the enterprise performance. However, neither the positive external gap nor the negative external gap has a positive impact on the enterprise performance. The research concluded this conclusion is due to the current state-owned enterprises still have the problem of the low degree of market-oriented salary design. Besides, the influencing factors of executive compensation are more complex. Some factors are difficult to quantify and can not be included in the empirical study.According to the conclusions of the empirical study, combined with the current situation of listing corporation executives’ incentive, this study puts forward some relevant suggestions. First, improve the information disclosure system of executive compensation, so as to improve the transparency and integrity of salary disclosure. Second, non state-owned listed company should focus on the relative improvement of executive compensation when making the executive compensation scheme. Third, carry out the reform program of state-owned enterprises’ executive compensation, so as to promote the market-oriented pay distribution. Fourth, improve the supervision and restraint mechanism of the executive, and set up the compensation warning system. Last but not the least, increase the proportion of managerial ownership and establish a diversified incentive mechanism.