An Analysis On The Correlation Between Pay Performance Sensitivity And Firm's Future Performance

The research of this paper mainly focuses on the state-owned enterprises.The issue of the salary of senior executives since the implementation of the structural reforms in China's state-owned enterprises has aroused widespread public concern.Because the characteristics of the separation of the two powers of the modern company led to the information asymmetry and the interest difference between the state-owned asset managers and the state-owned enterprise managers,the compensation mechanism linked to executive compensation and performance was born.Scholars' previous research mainly focused on the impact of corporate performance on executive compensation.Domestic scholars focused on research on the factors and effects of executive compensation-performance sensitivity.Foreign scholars have begun to pay attention to the effect of compensation of executives including ordinary employees performance sensitivity on firm value.This thesis takes the information of 485 enterprises of the Shanghai Stock Exchange and the Shenzhen Stock Exchange to study the relationship between salary performance sensitivity and future performance.Case study results confirm that salary performance sensitivity has a positive effect on performance after one year.In addition,We examine the robustness by changing the measurement of compensation-performance sensitivity,and the use of ROA and EPS rather than ROE.The results also meet everyone's expectations.However,Tobin Q,a market indicator that represents the company's long-term performance,has no obvious correlation.We further use the two-phase ROE regression to regress.The results show that executive compensation-performance sensitivity is still significantly positively correlated with corporate performance,and the significance is reduced.However,there is no significant correlation between employees compensation-performance sensitivity and corporate performance.With the three-phase lagging ROE and the pay-performance sensitivity of executives and employees,there was no obvious correlation.Considering the influence of other factors on corporate performance,it was found that the total number of assets,equity concentration,female senior management ratio,and proportion of senior management shares were all significantly positively related to the short-term performance of the company;asset-liability ratio,ratio of independent directors,and senior management tenure The short-term performance of the company is significantly negatively correlated;the two-position chairman of the board and the general manager do not have a significant effect on the short-term performance of the company.The results confirm that senior management and employees pay-performance sensitivity are more sensitive to the short-term performance of the company due to the"incentive utility",but for the long-term performance of the company,especially the ordinary employees,the effect is not significant.Finally,this paper gives some suggestions and strategies for the encouragement of listed companies in China.Implements equity incentives,increases the proportion of senior management in state-owned companies,promote the reform of the company's remuneration distribution system,improve the compensation structure of employees,improve the construction of the decision-making system,and adhere to the principle of collective decision-making on major issues.