The Effect Of Executive Compensation Cuts In Corporate Governance

The establishment of modern corporate governance mechanism is the necessary measure to the development of the enterprise, the executive compensation is an important part of corporate governance, executive compensation system not only directly affects the personal rights and interests of executives,also affect the executive decisions and efforts in the management of company. Current executive compensation generally includes basic salary and incentive pay, incentive pay in the composition of executive pay is larger, and the latter has a far greater impact on the corporate governance. In recent years, some enterprises adopt the penalties mechanism such as executives turnover and compensation paycuts in the traditional incentive pay and formed a new and complex mechanism, which is positive incentive combined with reverse constraints, many companies began to adopt executive pay cuts in order to encourage executives to improve company performance.Under this background, based on the research of Fang Junxiong(2012), Wowak et al (2011), the Gao, Harford and Li (2012), Chen Donghua (2013), this article focus on the reasons and economic impacts of executive pay cut during the period of 2007 to 2013. Based on agency theory and incentive theory, following the research path "status quo analysis, theoretical analysis, empirical analysis, the conclusion", this article study executive pay cut under the mainstream view of optimal contract and management authority. Specific perspective, this article choose all listed companies in addition to the financial industry as samples, choosing 1155 listed companies,8082 samples observed value, time span for the 2007 to 2013, based on the panel data using logit model we analyzes the factors influence the probability of executive pay cuts and through the regression analysis research the influence of pay of executives on company performance, their own executive compensation and corporate policies such as capital expenditure, short-term borrowing and management fees. In this paper, the results expand the research of Gao, Harford and Li (2012), Chen Donghua (2010), Luo Hong (2014), the results showed that the main factors of executive pay cut contain the company performance, the board of directors is expected, the early stage of the executive compensation, board size, ownership structure, etc; What’s more important is this article found that executive pay cut tend to reach the anticipated target of the board of directors. Senior management will increase individual reward such as on-the-job consumption and take the more steady governance policies.Due to executives is the main part of the corporate governance, executive compensation will directly affect the process of decision-making executives in corporate governance, especially the company policies such as capital expenditure, short-term borrowing and management fees, etc., in terms of company executive compensation policy should be comprehensive consideration, on the one hand, The board of directors should establish the objective expectations for executive capability and firm performance as far as possible; on the other hand, given priority to with positive incentives, supplemented by constraint penalties such as wages, etc.; In addition, the executive compensation should not be only with the company’s current performance, shall consider short -term and long-term development of the company, and take the policy adjustment introduced by executive into account.