The Effects Of Senior Executives' Overconfidence On The Compensation Structure

The concept of overconfidence has aroused the strong interest of scholars both at home and abroad since its introduction.Its exploration of individual behavior is an important extension and supplement to traditional financial research.The research results of recent years have mainly focused on the relationship between executives' overconfidence and corporate external performance,such as investment decisions,merger behaviors and business performance.However,there has been little research on the relationship between executives' overconfidence and corporate internal decision-making.With the development of China's securities market and the improvement of relevant regulations and policies,the equity incentive has been applied in enterprises more widely,which has also promoted the diversified development of executive compensation structure.Under the influence of the characteristic of overconfidence,the executives' value evaluation of various compensation patterns will also change.Exploring the influencing mechanism of executives' overconfidence on their compensation structure and using this psychological characteristic to adjust the compensation contracts to reduce actual employment costs,are of great significance for the business development and the value enhancement of enterprises.Based on the latest research results from domestic and foreign scholars,this article takes the psychological characteristic of executives' overconfidence as an influential factor,and incorporates it into the research system of executive compensation structure.This article uses literature review,theoretical analysis,and empirical test to conduct a relatively systematic study on the effects of senior executives' overconfidence of quoted companies in China on their compensation structure.This article selects companies that have implemented equity incentives in Shanghai and Shenzhen stock markets during 2010-2016 as samples.Through data analysis and empirical tests,it is found that when other factors remain unchanged,overconfident executives tend to ask for higher pay gaps with other members of the senior management team and prefer to increase the proportion of incentive compensation in the overall compensation.This study provides a basis for the design of compensation contracts between enterprises and their different types of senior executives,and puts forward corresponding suggestions from the perspective of protecting the overall interests of the enterprises and meeting the individual needs of senior executives.