CEO Tenure,Executive Compensation Gap And Company Performance

Separation of corporate owners and managers are the main motivations of principal-agent problem,and a good salary incentive system is the key to solve the principal-agent problem.Based upon the principal-agent theory,prior research into executive compensation has primarily focused on "optimal contract perspective",in which theroy the board sign a fair contract with executives at the aim of maximization of the shareholder's profit to decrease the agent cost.But relevat studies didn't reach an agreement,companied by the rapid increase of CEO'pay,and the happening of accounting scandals from time to time in America.more and more people are beginning to doubt the effect of "optimal contract perspective".Especially after the outbreak of Enron,"managerial power perspective" aroused at the historic moment.This hypothesis is also based on principal-agent theory,but executive compensation motivation is not been seen as the tool of solving the agent problem,instead,executive motivation itself is regarded as a part of the agent prolem.Managers would use their own power to grab additional rent which is more than the optimal pay he could get under fair contract.Considering the research status of our country,on one hand,relevant studies mainly focused on "optimal contract perspective",however,the sutdy on"managerial power perspective" is not sufficient such as its feasibility and effectiveness in China.On the other hand,research into the level of executive compensation is abundant,but research related to its structure is relatively poor.We all know that the dispersion across manageral team members which is an important dimension of compensation structure is bound to influence executive's behavior and then to corporate performance.As a matter of fact,there is whopping pay and zero compensation in our executive market,too large compensation gap has aroused public attention,especially the compensation revolution of our country present a repetitive characteristic.Reflecting that there still exist some black hole revolving aroung evecutive motivation,just making use of policy and law cannot solve the problem.Thus,only by making more deep research into the influencial factors and its operation mechanism can we improve the effectiveness of executive compensation from its root.This paper is going to study the relation of TMT compensation gap and corporate performance from the point of "managrial power perspective" and"principal agent theory".According to relevant literature review,we found that there were no agreement on these two problems in our country.Although papers related to the reason of TMT compensation gap mainly comes from the manager power theory,CEO has positive-control effect,negative-control effect and non-control effect towards executive compensation gap.Besides,papers related to the economic consequences of TMT compensation gap maily include three different points which are positive correlation,negative correlation and inverted U-shaped relation.Upon analysis,we found that apart from the disparity of research methods and research sample.Most study is static lacking dynamic point of view.Therefore maybe it is a good way to introduce a regulation variable to dynamically analyse the relation of execution pay disparity and corporate performance.CEO tenure as one of the CEO' personal characteristics is closely related to corporate performance.So,this study introduced CEO term into executive compensation and corporate performance,and our sample is drown from non-finacial public listed firms from Shanghai ahd Shenzhen stock exchange duing 2010-2014.Our conclusion is as follows by examing the relationship of CEO term,TMT compensation gap and corporate performance empirically.(1)CEO tenure and corporate performance present an inverted U-shape,which demonstrate the feasibility of "managrial power perspective" in China.(2)TMT pay gap and corporate performance present an inverted U-shape.(3)CEO tenure and TMT pay gap has high positive relation.(4)In the sample of primary CEO,TMT pay gap is positively related to corporate performance;however in the sample of experienced CEO,TMT pay gap is negatively related to corporate performance.Our conclusion revealled the relation of TMT compensation gap and corporate performance from a dynamic perspective,enriched the research connected with executive compensation and provide a referrible perspective for executive compensation revelution.At the same time,our study also demonstrated how CEO tenure influence corporate performance,that is to say,we can take TMT pay gap as an indirect variable,because its expansion and narrowing will produce synergy or vandalism beteween TMT members which will finally influence corporate performance.This perspective also contribute to the relevant research into Upper Echelons Theory.