| The problem of incentive and constraint for company manager has been the key point of modern enterprise theory since the separation of ownership and control inhered in the modern enterprise. The research of manager compensation is based on principal-agent theory, however, a lot of empirical results show that there is no markedly positive correlation between the pay of manager and the firm performance, which is contrary to the anticipation of principal-agent theory. The perplexity of the pay-performance relation showed in empirical study makes the researchers start to explore outside market factors that influence executive pay. Career concern-concerns about the effects of current performance on future compensation-was born in manager market, which has effect on manager behavior. This paper combines performance pay with career concern and derives the optimal structure of compensation contract by building model under the frame of principal-agent theory. The results show that career concern can be used as substitute for incentive contracts. When the incentives from career concern are weakest, explicit incentives from compensation contract should be strongest.In addition to analyzing the characteristics of optimal compensation contract in the presence of career concern, this paper builds an empirical model by presetting two hypothes. This paper chooses longitudinal data for 234 non-state enterprises in manufacturing industry from 2009 to 2012. As a result, the pay-performance sensitivity becomes stronger as the manager becomes older, but the pay-performance sensitivity becomes weaker as the time of tenure becomes longer.In the end, this paper suggests that it is useful to combine career concern and compensation contract. Using career concern can reduce the cost of incentive when manager is further from retirement. When manager is close to retirement, it is necessary for the increasing of firm performance to enhance compensation incentive. |
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