Research On Internal Control,Ownership Structure And Executive Compensation Stickiness

The establishment of Compensation incentive mechanism in which compensation is sensitive to performance is a sub-optimal option for many listed companies to reduce agency costs.A large number of studies have shown that in our country,executive compensation and company performance are positively correlated.However,some scholars have noticed that there exists a problem in the practice of Compensation incentive mechanism:an asymmetric feature between the changes of executive compensation and company performance appears.This feature is defined as executive compensation stickiness.For specific expression,the stickiness shows the phenomenon that executive's compensation with the rising performance rises significantly greater than the compensation decline with the declining performance.executive compensation stickiness reflects the fact that executives are unwilling to accept lower wages and they also have the ability to influence their wages,this self-interested behavior of executives harm the interests of shareholders,meaning that executive compensation stickiness itself will generate new agency costs.In October 2009,GEM began to provide a financing platform and growing space for entrepreneurial enterprises,SMEs,high-tech enterprises.Distinct features appear with the rapid growth in this emerging markets.the most striking feature is the GEM's "three high":high financing rates,high issue price,high price-earnings ratio,reflecting the opportunities and challenges GEM faces.But it's surprising that,under the rapid development of enterprises circumstance,most of the GEM executives did not choose to stay in business,they cash out while leaving the company.This high mobility undoubtedly increase business risk,which also shows the flaws existed in the Compensation incentive mechanism of GEM Companies.So it is necessary to verify whether the stickiness exists in GEM listed companies.Most companies before listing in GEM usually use family business management model,when they become listed companies,they begin to introduce a variety of outside investors,pristine shareholders equity will be diluted,equity type will regroup,resulting in the ownership structure change.So the GEM listed companies must reform and improve the ownership structure to ensure the company's operating performance.If there is a stickiness in GEM,then the studies of the impact of changes in the ownership structure on the executive compensation stickiness becomes vital.At the same time,after improving the ownership structure,balancing the relationship between shareholders,board of directors and managers,company's efficiency and effectiveness will be affected from a higher strategic level.But companies have clear organizational structure and division of power,companys'actual operation need co-operation of staffs at all levels.After the consolidation of ownership structure,good internal control can help to ensure the working efficiencies of different levels 'staffs through risk assessment,control activities,information release and feedback,monitoring of business processes.Compared with ownership structure's high-level impact on the company,internal control play a greater role in solving company's low-level operational problems,-it can ensure the efficiency of the company's operations,the authenticity of financial reporting,the legal compliance of operation.Based on the ownership structure and internal control linkages and focus,the author of this article finds it's necessary to bring ownership structure and internal controls into the same framework.The author of this paper uses Principal agent theory and Managerial Power theory to explain the Inevitability of executive compensation stickiness.In terms of these two angles,the author focus on the internal control and ownership structure(ownership concentration,managerial ownership,corporate shares,state-owned shares)impact on executive's compensation stickiness.The author summarizes the relevant theory and literature,make descriptive statistics of the collected 1135 samples based on the 2010-2014 GEM listed company's annual report,then make comparison of stickiness of different groups which are divided in accordance with characteristics of internal control and ownership structure variables on the overall sample,Next is a multiple regression model containing cross-multiplication term.Finally,to make results more robust,the author uses abnormal executive compensation as an alternative of explained variable.Empirical studies have found:(1)GEM listed companies have executive compensation stickiness;(2)high-level internal control can suppress compensation stickiness;(3)high concentration of ownership can inhibit compensation stickiness;(4)higher proportion of institutional investors shares and state-owned shares can inhibit compensation stickiness;(5)higher proportion of managerial ownership will strengthen compensation stickiness.Based on the above findings,the author of this paper puts forward some suggestions on the improvement of executive compensation mechanism.The suggestions are(1)GEM listed companies should strengthen their internal control systems;(2)currently high level of ownership concentration should be maintained;(3)bringing in appropriate proportion of state-owned shares and institutional investors shares are necessary.(4)control managerial ownership so that shareholders and board of directors can play relevant roles in the constraints;(5)try to establish a more comprehensive employee performance evaluation system to ensure an authentic and transparent.Remuneration disclosure.