Equity Incentives, Executive Compensation And Earnings Management

Modern corporate governance covers a wide range,and executive compensation incentive is important contents studied by many scholars.In the 1990 s,China gradually introduced the share incentive mechanism.And with implementation of the share incentive mechanism,executive compensation structure of listed companies has corresponding changes,which can finally affect earnings management behaviors of executives in listed companies.Share incentive is a long-term incentive mechanism of modern companies to stimulate and retain core talents and it is one of common methods to motivate employees at present.Share incentive is mainly to give shares to employees with conditions to make them have the sense of ownership so as to form a community of interests with enterprises and promote mutual growth of enterprises and employees,thus helping enterprises to realize the long-term target of stable development.On December,31,2005,the document Management methods of share incentive of listed companies(trial)was issued with the purpose of improving the situation that Chinese enterprise had insufficient motivation to executives in a long time.And on August,4,2012,the Interim measures for the management of employee stock ownership plans of listed companies(draft for comment)issued by Securities and Futures Commission was to affirm the share incentive plan and advocate and encourage employees of listed companies to have shares of the company.Share incentive has been a salary incentive mechanism affirmed by listed companies.Moreover,it cannot only help enterprises to attract excellent talents but also promote management layers to share interest and risks together with shareholders.The successful reform of equity division greatly improved mobility of the capital market and provided favorable conditions to implementation of share incentive plans.The above are opinions of optimal contract.Complete salary incentive mechanism can solve principal-agent problems effectively.And in particular,appearance of share incentive plan can actually make executive salary incentive mechanism even better.However,the implementation of share incentive mechanism can not only improve salary of management layers but also change the salary structure of executives.The managerial power approach believed that share incentive-centered salary mechanism would not necessarily bring favorable effects to corporate governance;instead,it would cause CEO misuse share incentive to obtain private interests under the condition when environment for corporate governance was weak.Since incentive level of managers is not only affected by payroll but also affected by salary structure,blind improvement of salary would generate “ratchet effect” [Du2],and increase labor costs.Therefore,the essay would discuss possible consequences of implementation of share incentive from the perspective of salary gap between executives.Under the above background,the essay calculated earnings management of company executives by use of modified Jones model,and discussed influence of share incentive of Chinese listed companies on internal salary gap between executives and changes of earnings management of corporate executives under the influence by taking listed companies from 2010 to 2016 as samples.The research findings indicated that implementation of share incentive plan had become a major factor for the gap between executives.And under the influence of share incentive,expansion of the internal salary gap between executives increased the earnings management degree of corporate executives.Compared with state holding enterprises,the influence of share incentive and executive internal salary gap in non-state holding enterprises on earnings management of corporate executives is bigger.The research findings can help to improve the executive salary incentive mechanism and provide experience for investors to distinguish implementation effects of share incentive plan.