Executive Excess Compensation And Firm Performance

As a way to encourage senior management to maximize shareholder value and reduce the agency cost,executive compensation is a hot topic in corporate governance.And the rationality of executive compensation is also concerned by society and academic circle.Agency theory suggests that executive compensation is supposed to be determined by firm performance,not the corporate governance.Based on this theory,this paper first exams the effect of corporate governance on executive compensation,especially examing the effect of interlocking relationship.In the sample of 2005-2014 Chinese listed companies(excluding finance companies),this paper finds that significant correlation exists between corporate governance and executive compensation,and degree centrality has a significant positive correlation with executive compensation,as well as closeness centrality and betweenness centrality.To exam how corporate governance affects executive compensation,this paper defines the compensation caused by corporate governance as excess compensation.By examing the correlation between excess compensation and firm performance,we find that the excess compensation has significant positive correlation with firm performance,and this correlation doesn't change over time.The result means that the excess compensation caused by corporate governance has no negative effect on firm performance,and it is reasonable.The compensation caused by corporate governance reflects executive ability.Executives who are in the center of the interlocking network have to deal with more information and social relationship.Therefore,they get higher compensation.