Research On The Effect Of Company Strategy On Executive Compensation Contract

Since Berle and Means(1932)proposed the principal-agent theory,solving the principal-agent problem has always been a hot research issue in the field of corporate governance.As an important incentive mechanism,salary incentives are regarded as the core to solve the problem of modern enterprise principal-agent.A reasonable,effective and fair compensation contract not only helps to alleviate the company's principal-agent problem,reduce agency costs and avoid the moral hazard of operators.At the same time,it can improve the company's short-term performance and long-term value.However,many companies currently have unreasonable compensation system design,such as short-term salary is too high,and long-term incentive measures are not in place,which makes the compensation contract incentives fail to achieve the expected utility.Therefore,it is necessary to re-examine the design of executive compensation contracts.The company strategy is for the long-term,basic and systematic problems of the company,and has an important impact on the corporate governance structure and mechanism.However,the existing salary research has paid little attention to the key factors of corporate strategy in the study of the factors affecting executive compensation,and has not paid enough attention to the combination effect of long-term salary incentives and long-term and short-term compensation in the compensation contract.Finkelstein and Hambrick(1988)argue that different corporate strategies can make a company's risk level and business complexity different,and that the risk that executives need to bear in a specific strategic decision-making process will result in different risk rewards for executives.According to the contingency theory of management,the design of corporate executive compensation contract or system should be based on the company's strategy and its own internal and external environment and other contingency factors.Therefore,the company strategy is likely to be one of the main factors determining executive compensation.Based on the principal-agent theoretical framework,this paper takes China A-share listed company from 2008 to 2016 as a sample to empirically test the impact of the company's strategy on the compensation contract incentives.In order to make the research results more in line with China's institutional background and economic environment,the nature of property rights and corporate litigation risks are introduced.for further studying the influence of the company's strategic incentive process on the executive compensation contract under the different property rights and litigation risk,and carry out the expansion test on this basis to further study the internal mechanism of the company's strategy affecting the compensation contract.It provides valuable reference and suggestions for the listed companies in China to establish an executive compensation incentive contract that matches their own strategies and corporate characteristics.The empirical results of this paper show that:1)Enterprises with more aggressive strategies will reduce short-term incentives and increase the proportion of long-term compensation incentives such as equity incentives in their executive compensation contracts.2)Compared with state-owned enterprises,the more aggressive non-state-owned enterprises will reduce the short-term salary incentives of senior executives in their executive compensation contracts and increase the proportion of long-term compensation incentives for executives.3)In the case of litigation risks faced by enterprises,the more aggressive the strategy,the more will design lower-level executives' short-term compensation and increase the proportion of long-term compensation incentives in their executive compensation contracts.This paper introduces the company strategy into the traditional executive compensation management research,expands the scope of executive compensation and corporate strategy research,and enriches the theoretical research literature on compensation management and corporate strategy to a certain extent.Secondly,the research conclusions of this paper enrich the executive compensation in China.The structural model and the design of a reasonable and effective executive compensation contract for listed companies have important practical significance.