The Impact Of Equity Control Chain On Executive Compensation

In the late 1990 s,relevant information such as executives' annual compensation of listed company began to be disclosed to the public and the public gradually began to pay attention to the management's compensation.With the continuous advancement of the compensation system reform,there have been constant media exposures of corporate executives' "high price pay" or "zero pay".This abnormal compensation phenomenon has caused widespread public doubts.In September 2015,the Party Central Committee and the State Council jointly issued the "Guiding Opinions on Deepening the Reform of State-Owned Enterprises" to improve the unreasonable compensation structure and the inadequate supervision system.In May 2018,the State Council issued the "Opinions on Reforming the Decision Mechanism of State-owned Enterprises' Compensation",striving to systematically reform the wage distribution system of state-owned enterprises.The introduction of a series of policies has made executive compensation a hot spot of social concern.To understand the compensation system of enterprise groups,it is inevitable to have a deep understanding of the organizational form of enterprise groups.The pyramid structure is a major organizational form of modern enterprise groups.The ultimate controller of the company at the top of the pyramid structure controls the listed company by equity control chain,so that it can gain greater control over the listed company with relatively few cash flow rights.The equity control chain is the core structure of the pyramid structure.From this perspective,the study of China's executive compensation contract has unique opportunities and values.Based on this background,this paper takes the A-share manufacturing listed companies from 2013 to 2017 as a sample and bases on the Principal-agent Theory,the Optimal Compensation Contract Theory and the Managerial Power Theory,theoretically analyzes and empirically tests the impact and mechanism of the equity control chain on executive compensation and executive compensation performance sensitivity.Findings show that:(1)In the state-owned enterprises,the longer the equity control chain,the higher the executive compensation level.The "Managerial Power Theory" has a strong explanation for the mechanism of action: when the equity control chain is long,the executives' rights to seek private affairs are more insidious.They have greater motivation to use power to influence the compensation contract decision and thus improve their compensation levels.(2)In non-state-owned enterprises,the longer the equity control chain,the higher the executive compensation level.The “Optimal Compensation Contract Theory” explains the mechanism of action: The ultimate controller increases the cost of losing job by raising the level of executives' compensation,thus reducing the damage to the company's performance caused by their private interests.(3)In state-owned enterprises,the longer the equity control chain,the lower the executive compensation performance sensitivity.The “Managerial Power Theory” explains the mechanism of influence: Executives have a stronger incentive to implement private interests in order to achieve better “political performance”,but these behaviors often jeopardize company performance.Reducing executive compensation performance sensitivity will prevent its compensation from being compromised by the company's performance.(4)In non-state-owned enterprises,the longer the equity control chain,the higher the executive compensation performance sensitivity.The “Optimal Compensation Contract Theory” explains the mechanism of influence: the opportunistic behavior of management will result in a decline in the quality of corporate earnings.Through improving executive compensation performance sensitivity,the final controller can alleviate executives' surplus manipulation behavior.According to the research results,this paper believes that enterprises should establish a supervisory mechanism for executive behavior and improve the reward and punishment mechanism.At the same time,state-owned enterprises should establish a salary mechanism in parallel with marketization and government intervention.This study contributes to the research on equity control chain and executive compensation and examines the ability of the "Optimal Compensation Contract Theory" and " Managerial Power Theory " to explain the mechanism of the equity control chain affecting executive compensation and executive compensation performance sensitivity under different property rights.At the same time,it also provides a certain reference for corporate governance.