Research On The Impact Of Non-executive Directors On Executive Compensation

The board of directors is the core of corporate governance,the composition of the board of directors will directly affect the supervision to manager.In the past,the research on the board of directors has been studied from the independent director,the executive director,the female director and other aspects,aim to study its impact on the efficiency of corporate governance.Recent studies have shown that the effectiveness of independent directors is increasingly being questioned,it is because the introduction of independent directors by listed companies is often just to meet the SFC's requirements.So,the role of the independent director(refers to non-executive directors outside independent directors,hereinafter referred to as non-executive directors)has not been effectively played.A non-executive director is a board member appointed by a major shareholder,controlling shareholder or institutional investor in a listed company,it is the shareholders and investors who are appointed to meet the needs of their own oversight management.Therefore,non-executive directors are more independent of management than independent directors,and their supervisory role will be well played.The importance of non-executive directors is gradually emerging.Executive compensation is widely concerned by the public and investors as a matter of social issues such as social justice and corporate governance,and the incentive and restraint of executive compensation is also the focus of academic research.The board of directors should supervise the management and provide high-quality consultation,and they should also develop motivational executive compensation systems based on information such as executive performance and corporate performance,in this way,the self-interest behavior of the executive can be restrained to a certain extent.The sensitivity of executive compensation performance refers to the level of executive compensation related to performance,and then to motivate executives to work hard to improve their performance;The stickiness of executive pay highlights the asymmetry of pay with performance changes,and the suppression of pay stickiness means it can restrain executives from doing things that are bad for the company when performance declines.In this paper,the incentive and restraint of executive compensation are measured by the two indexes.of executive compensation performance sensitivity and executive pay viscosity,and the role of non-executive directors is also investigated,so that we can find the impact of non-executive directors on executive pay.This paper studies the following questions from theory and empirical perspectives:Will non-executive directors have an impact on executive compensation performance sensitivity and the stickiness of executive pay?What impact does it have?Does the ownership and management power play a regulatory role in the relationship between non-executive directors and executive compensation?In theory study,this article systematically review and summarize the non-executive director,executive compensation performance sensitivity,executive compensation,viscosity and the literature of relationship between board structure and executive pay,and it also points out the deficiency of existing research and summarizes the necessity of this study.After that,this paper starts from the theory of principal-agent theory and management power,find an internal link between non-executive director and executive compensation performance sensitivity and executive pay viscosity,and put forward the corresponding research hypothesis.In the empirical study,this paper selects A share listed companies in Shanghai and shenzhen from 2009 to 2015,with a total of 6,475 company samples as the final regression samples.And design the variables such as non-executive director,executive compensation performance sensitivity,executive compensation viscosity,management power and other variables;Based on the proposed research hypothesis,constructed a corresponding regression model;using Excel 2013 and SPSS 20.0 software to carry out statistical,processing and regression analysis of data.Finally,the relationship between non-executive director and executive compensation performance sensitivity and pay stickiness is explored.The results of this paper show that:(1)non-executive directors can effectively improve the performance sensitivity of executive compensation and promote the development of incentive executive compensation system;(2)non-executive directors have a significant inhibitory effect on the stickiness of executive pay viscosity,that is,non-executive directors can reduce executive compensation in a modest manner while the company's performance declines,and restrain the behavior of senior executives.(3)the effect of non-executive directors on executive compensation is more significant in state-owned enterprises than that of non-state-owned enterprises;(4)there is no significant adjustment between the executive power and the executive compensation performance,and the management power plays a negative regulatory role on non-executive directors and pay stickiness.Based on theoretical analysis and empirical research,this paper argues that listed companies should attach importance to the governance role of non-executive directors,focusing on the appointment of non-executive directors,formulating and improving policies relating to non-executive directors,elevate the status of non-executive directors on the board,ensure that the functions of non-executive directors can be effectively played.Secondly,listed companies should also fully realize the characteristics of their equity nature,to formulate policies relating to non-executive directors,ensure the full play of non-executive director governance.In addition,listed companies should focus on optimizing the internal structure of the company,control of executive power,provide a good environment for non-executive directors to exercise supervisory power.Finally,listed companies should also pay attention to the role of non-executive directors of middle and small shareholders,to improve the "weak board" phenomenon in listed companies.