Research On The Effect Of Competitive Strategy On Executive Pay Performance Sensitivity

According to the optimal contract theory and incentive theory, executive compensation should be closely related to the performance of the corporation. Theorists have made deep and extensive research on the characteristics and causes of executive pay performance sensitivity, reaching fruitful results, however, research on the pay performance sensitivity from operation strategic perspective is relatively lacking. With the aggravation of the market competition, competitive strategy is very important to the survival and development of corporations, executives play an important role in the formulation and implementation of the strategy, how to guide the behavior of the executives, compensation is one of the key factors. Executive compensation should be matched with the competitive strategy to motivate executives to make efforts to achieve the goal of the competitive strategy.State-owned enterprises and private enterprises has some fundamentally difference with their properties in our country. Research on the effects of competitive strategy on the executive pay performance sensitivity distinguishing the different nature of the property can reach some more scientific and reasonable conclusions. Therefore, this paper uses the data from 2009 to 2014 Shanghai and Shenzhen A-share manufacturing listed corporations as a sample, distinguishing state-owned enterprises and private enterprises, to study the effect of the competitive strategy on executive pay performance sensitivity of the corporation. The results show that, for state-owned enterprises, corporations with a differentiation strategy has a significantly lower sensitivity between executive compensation and accounting performance, and also a significantly lower sensitivity between executive compensation and market performance, compared to those adopting the cost leading strategy. While for private enterprises, corporations with a differentiation strategy has a significantly higher sensitivity between executive compensation and market performance, while no significant impact on the sensitivity between executive compensation and market performance, compared to those adopting the cost leading strategy.The empirical results confirm that the competitive strategy is an important factor affecting the executive pay performance sensitivity. From the perspective of incentive, private enterprises realize the effective match between executive pay policy and competitive strategy, while state-owned enterprises failed due to complicated reasons. Therefore, we propose the comprehensive evaluation of performance, the market selection and the effective governance structure for the state-owned enterprises.