External Audit,Managerial Power And The Defense Of Compensation

In the economic arenas,the problem of income distribution is one that is most able to provoke the public sensitive nerve.According to the current situation of China's system,the income distribution of state-owned enterprises and executive compensation of listed companies is a long standing topic that is exposed to the'public eye and heated up for the public.Firstly,for state-owned enterprises,since the establishment of the SASAC,the central enterprises executive compensation mechanism gradually is becoming more standardized and reasonable,on the whole,the salaries are on the rise.At the end of 2009,the average annual salary of central enterprises managers amounted to 600000,However,whether from the overall situation of the performances of state-owned enterprises in different industries,or from the "astronomical pay" cases,the degree of decoupling between the growth of salary and the operating performances of enterprises is quite striking.From the point of private enterprises,as the manager market is not operating perfectly and the uniqueness of enterprise culture,the managers are often appointed by the founder,which leads to the situation where executive compensation often showed the feature of "do as I say".For state-owned enterprises,the adjustment and optimization of the salary structure are regarded as a fulcrum leveraging of the reform of SOE and income distribution,while for private enterprises,improving the efficiency of compensation contract is one of the most important ways to promote enterprises to obtain obtain a steady flow of vitality.In the circumstances where the executive compensation is widely questioned,in order to improve the efficiency of compensation contract,safeguard the social fairness and justice,in 2009 the Ministry of human resources and social security and the central organization department and the Ministry of supervision,Ministry of Finance and the Audit Commission,the SASAC and other units issued a guidance on further regulating the pay management of central enterprises,which is called the salary limit order of China version.Subsequently the salary system reform starts like a raging fire.Whether the series of salary system reform can carry out the anticipated effect,and whether the salary system reform of central enterprises can inspire the enthusiasm of private enterprises are worth studying and attention on.Executive pay is at the sight of the public rather than behind the scene.Whereafter,on the one hand,out of the self-interest motivation,executives hope to get a high salary and compensation growth,on the other hand,the government rejected the unreasonable growth of compensation regulation of executive compensation,as a result,they must try harder to realize the salary growth.If the manager needs to provide a justification to the public for his high salary and salary growth,besides,he can affect his own compensation mechanism,the conflict between compensation regulation and the incentive of self-interest may force the manager to take some measures.Then the sensitivity between pay and performance reduces or increases?No doubt that it is a feasible approach for managers to increase the performance to make their compensation reasonable,while the lack of supervision mechanism and the expansion of managerial power make it possible for executives to capture private benefits.Improving the compensation contract itself is to curb the self-interest of executives,but executives will improve performance by setting favorable indicators or manipulating profits.From this point of view,the sensitivity of salary and performance has improved,and the guiding role of government has been turned out to be positive results,but we cannot ignore the role of managers playing in the excellent results.The emergence and development of independent auditing system stem from modern company system.Because of the existence of principal-agent cost,auditors become the bridge of information feedback between shareholders and management.On the one hand,the internal governance of listed companies is an important source of information in the implementation of risk oriented auditing.In the meantime,users also expect to obtain internal governance information,in order to help make management and investment decisions.Therefore,whether external audit can identify and reflect to the public management the credibility of compensation performance has become an important issue of concern.In the context of salary regulation,this paper studies the relationship between audit quality,management power and the sensitivity between compensation and performance,so as to further explore the salary defense behavior of executives.This paper firstly explains the behavior and motivation of the management's rent-seeking from the perspective of principal-agent theory and managerial power theory,besides,this paper makes a theoretical exposition of the management's defense behavior of compensation from the perspective of the impression management theory.Based on these,taking the salary order in 2009 as an event,we select 2010-2016 years of Shanghai and Shenzhen A-share listed companies as research samples.Based on the theory,the hypothesis and empirical analysis are put forward subsequently.Referring to Rui Lu,(2008),Xiaofeng Quan,etc.(2010),Hong Luo,etc.(2014),the following five indicators were analyzed by principal component analysis,and this paper takes the comprehensive score of principal components as the comprehensive index of executive power:executive tenure;managerial ownership;whether the general manager and the chairman are the same one;the size of the board;the proportion of inside directors,in order to further test the relationship between the managerial power and sensitivity between pay and performance.At the same time,using the shareholding of institutional investors to study the impact of institutional investors' shareholding on managerial power and the sensitivity between compensation and performance.The results show that the greater the managerial power,the more excess compensation;the management of power will bring the increase of sensitivity between pay and performance;the audit quality will weaken the positive correlation between the managerial power and sensitivity between compensation and performance.Based on the results,this paper gives some suggestions:establishing a multi index salary assessment system,improving the corporate governance and strengthening the supervision effect of audit.