Executive Compensation-Performance Contract And Its Impact On Future Performance Of Enterprises

The problem of principal-agent which is caused by the separation of ownership and control power has always been a hot topic for scholars at home and abroad around modern enterprise theory.The academic community generally believes that linking the compensation of agents with enterprise performance can effectively unify the interests of agents and principal to solve the problem of principal-agent,and the higher the degree of compensation and performance links,the more effective the compensation contract.This paper believes that the effectiveness of the compensation contract is not only reflected in the improvement of pay-performance sensitivity,but also reflected in the improvement of the future enterprise performance.Therefore,this paper focuses on the development status of executive compensation and enterprise performance in China.And based on agency theory,optimal contract theory,prospect theory,managerial rights theory,Maslow's hierarchy of needs theory,pay defense hypothesis,etc.,this paper puts forward five hypotheses for studying the following two problems.Firstly,whether the listed companies in China have generally reached the executive compensation performance contract.Secondly,with the improvement of the effectiveness of the executive compensation performance contract,which means the improvement of the sensitivity of the salary,can significantly improve the future performance of the enterprise.In order to study the above two problems,two models are designed for empirical test,and the calculation of independent variable in the model two depends on the test results of model one.In the empirical research,principal component analysis is used to calculate the financial performance of the enterprise and a single indicator ROA which also represents the financial performance of the enterprise is used in the robustness test.The data in this paper comes from the CSMAR database and the WIND database.First of all,this paper uses the data of 3566 A-share listed companies from 2004 to 2017 to analyzes the current situation of executive compensation in different years,different property rights,different regions and different industries,and then analyze the enterprise performance status from the financial performance and Market performance.Then,this paper selects 835 samples of A-share listed companies according to certain screening criteria,and uses the 2011-2017 financial and market data to conduct empirical analysis to verify the five hypotheses proposed in this paper.After empirical analysis and robustness testing,we found the following conclusions.Firstly,regardless of the use of comprehensive financial indicators or a single indicator ROA,the financial performance of listed companies in China has a significant and positive impact on executive compensation,market performance has no significant impact on executive compensation,which indicates that the executive compensation performance contract is realized from overall in China.From the perspective of corporate attributes,from private enterprises to local state-owned enterprises to central state-owned enterprises,the impact of comprehensive financial indicators on executive compensation is weakened in turn,while the impact of ROA on executive compensation is increased in turn.And From the perspective of the dual roles of the governance structure,no matter whether the comprehensive index or the single indicator ROA is adopted,the enterprises without the situation in which the chairman is also the general manager of a enterprises have a more significant influence on the executive compensation than the enterprise with such a situation.Secondly,the variable of pay-performance sensitivity is selected as the proxy variable of the effectiveness of executive compensation performance contract.At the same time,based on the test results obtained by model one,the financial performance is used to calculate the sensitivity of all samples.Since the positive value of sensitivity indicates that the enterprise has developed and implemented the executive compensation performance contract.Therefore,the sample group with positive pay-performance sensitivity is selected for the following analysis.It is found that whether the comprehensive sensitivity index or ROA is used to calculate the sensitivity.the improvement of the sensitivity has a significant and negative impact on the future performance of the enterprise,and the impact is significant in the short term,but not significant in the long run.Finally,this paper finds that the implementation of the executive compensation performance contract may have a greater risk aversion effect on executives than the incentive effect,which will have a negative impact on the future performance of the enterprise.Based on this,this paper puts forward three suggestions for the formulation and execution of executive compensation performance contract of listed companies in China.