A Study On The Impact Of Board Of Supervisors On Paying For Luck

Fair,reasonable and effective remuneration mechanism is the essential elements for the survival,development and growth of a company.Scholars have paid a long time for the study of executive compensation,and formed a lot of research results.But whether it is in academia or in practice,attention to executive compensation has never diminished.However,more and more scholars have found that the process of setting up a remuneration contract creates a new agency problem: executives can rely on their own power to set their own pay.Especially in recent years,executives “astronomical pay” makes more and more people think whether executive compensation is reasonable and effective.In 2001,Bertrand and Mullainatha proposed the“paying for luck”,and they tested on the rationality and effectiveness of the executive compensation from this perspective.In accordance with their definition,“paying for luck” is that companies pay to the executive for the changes in performance due to observable elements beyond executive control.To the optimal contract as the theoretical starting point,we use the industry’s weighted average yield(ROA)-to remove the company’s own impact-as a measure of luck to test whether the executive pay contains the component of luck,and by improving the structure of the board of supervisors can reduce the luck of the executives.In the theoretical part of this paper,we use the theory of information asymmetry,principal-agent theory,optimal contract theory and management power theory to summarize the theory of compensation as the theoretical basis for solving the principal-agent contract.In the empirical part of this paper,we use all the listed companies(a total of 9984 data from 2007-2015)to form non-equilibrium panel data,and use STATA12 statistical software to analyze the relationship between executive compensation and luck of listed companies in China.We use the 2SLS regression model to calculate the paying for luck.In addition,we use the size of the board of supervisors,the proportion of the board of supervisors,the number of supervisors who are not paid as the proxy variable of the board of supervisors to study the relationship between the board of supervisors and the paying for luck.The main conclusions of this paper are as follows:(1)The executive compensation of listed companies in China generally contains the component of luck,and the effect of luck on executive compensation is second only to the influence of executives on executive compensation.In a company with good performance,luck has a greater impact on executive pay.(2)The size of the board of supervisors,the proportion of the board of supervisors,the number of supervisors who are not paid can affect the paying for luck.When the size of the board of supervisors is 3,the board of supervisors has the strongest effect on the paying for luck.The higher the proportion of the board of supervisors and the less the number of supervisors who did not receive remuneration in the board of supervisors,the lower paying for luck.(3)In the relatively good-performance company,the size of the board of supervisors,the number of supervisors who did not receive remuneration in the board of supervisors had a stronger effect on the governance of paying for luck.In the relatively poor-performance of the company,and the proportion of the board of supervisors had a stronger effect on the governance of paying for luck.Finally,according to the empirical results,we argue that there is a big difference in the specific circumstances of each company’s diversification and scale,so the size requirements of the board of supervisors are different.However,for the general company,the size of the board of supervisors should be maintained at a normal level of about 3 and companies should improve the proportion of the board of supervisors and reduce the number of supervisors who do not receive remuneration,which can effectively improve the governance effect of the board of supervisors on paying for luck.