Pay Comparison And Earnings Management

Experiments show that people pay attention to their own input and income,but also to others’ input and income.And in the process of this concern,it produces fairness preference.When he feels unfair,it will affect its own enthusiasm and behavior,thus producing certain economic consequences.Nowadays,the rapid development of the network and the openness and transparency of information make it easy for executives to obtain income information of other executives from various data sources,and compare with them to produce their own fairness preferences,and then make various defensive actions to obtain a sense of fairness.On the other hand,the pay system based on performance appraisal provides the possibility for executives to manipulate and improve their pay level through earnings management and other behaviors.Therefore,in recent years,the “high price salary” scandal broke out in the past few years(for example,in 2007,China’s Ping An’s executive Ma Mingzhe received a reward of up to 60 million yuan in one year.In 2009,the company’s executive deputy general manager Liang Jiaxuan received an annual salary of 28,592,100.In the same year,Shenzhen Development Bank executive Frank Newman earned an annual salary of 17.41 million yuan.are the result of earnings management behavior made by top executives due to the psychology of salary scaling.Through this behavior,they intend to alleviate their sense of injustice,which leads to the soaring level of executive compensation.In order to restrain the emergence of "sky-high salary" and reduce the negative impact of salary comparison psychology,In 2009 and 2014,the central government promulgated and implemented two salary limit documents: Guiding Opinions on Further Standardizing the Compensation Management of the Leaders of Central Enterprises,Reform Plan of Compensation System for the Leaders of Central Management Enterprises and Opinions on Rationally Determining and Strictly Regulating the Compensation and Business Expenditure of the Leaders of Central Enterprises.From the absolute amount of salary,salary structure,salary control and other aspects,they strive to return to the normal level of executive compensation,taking into account fairness and efficiency.However,there is still no clear conclusion on the implementation effect of these two documents.This paper tries to verify the above analysis from an empirical point of view.From the data point of view,this paper examines whether the behavior of salary comparison will aggravate the earnings management of executives.Can the documents issued by the central government successively suppress this phenomenon? Based on the above analysis,this paper did some research as follows.Firstly,the concept of salary comparison,earnings management and "salary limit order" is defined.After clarifying the three definitions,this paper combs the relevant classical theories,including the principal-agent theory and its development,the optimal contract theory and its development,the fair theory and the reference point contract theory to provide theoretical support and pave the way for the follow-up research.Secondly,on the basis of the above-mentioned theory,this paper reviews the existing literatures on salary comparison,earnings management and "salary limit order",and puts forward the research hypothesis: salary comparison is positively correlated with earnings management,and "salary limit order" can restrain earnings management behavior caused by salary comparison.It should be pointed out that,because the sample interval of this paper includes data before 2009,the central enterprises did not implement the salary management control system during this period.Only taking 2009 as the demarcation point and considering the changes around 2009,can we consider the in-depth analysis of the real effect of the "salary limit order".Therefore,in the core hypothesis of this paper,only the 2009 "salary limit order" as the main variable,while the 2014 "salary limit order" for further analysis.Thirdly,in order to verify the hypothesis,this paper takes A shares of central state-owned enterprises and local state-owned enterprises listed in 2006-2017(different sample periods and objects of different "salary restriction orders" as research samples.Earnings management is the explanatory variable and salary ratio is the explanatory variable.After considering the relevant control variables,the relationship between salary ratio and earnings management is verified.On the basis of this model,the multiplier of "salary restriction order" and salary comparison is introduced as another explanatory variable to test the effect of "salary restriction order" policy implementation,and relevant empirical analysis are carried out accordingly.The results show that salary scaling can indeed aggravate earnings management behavior.The "salary limit order" in 2009 did not achieve the desired effect,while the "salary limit order" in 2014 can restrain earnings management behavior caused by salary scaling.After replacing the relevant variables,the above conclusion still passes the robustness test,which shows that the conclusion is stable and reliable.Furthermore,the difference of policy effects between the two documents can be explained from three aspects: policy status,organization and implementation,and regulation mechanism.On the one hand,this conclusion reveals the inherent self-interest mechanism of Executives’ earnings management behavior,fully demonstrates that salary comparison psychology is an important factor,enriches and develops the research perspective of Executives’ salary;on the other hand,it also provides a new path and direction for enterprise management and national policy-making.On this basis,this paper throws out three suggestions as below:(1)pay attention to the subjective feelings of senior managers,pay attention to the psychology of comparison;(2)improve the degree of salary diversification,improve the salary evaluation system;(3)improve the salary limit policy,promote the healthy development of enterprises.