The Impact Of Executive Compensation Incentives On Banking Performance

The banking industry in C hina is one of the largest banking systems in the world and plays a crucial role in the nation’s economic development.The industry has gradually shifted from state ownership to market orientation,achieving diversification of banking services and opening up of capital markets.However,it also faces a series of challenges and opportunities,with principal-agent issues being one of the primary challenges.This paper examines the impact of executive compensation incentives on the performance of the banking industry,employing a combination of empirical and case study analyses.Theories of principal-agent,information asymmetry,incentive,and tournament are integrated,and a balanced panel dataset of 24 commercial banks from 2016 to 2021 is selected.Performance and executive compensation incentive indices for commercial banks are chosen,and the panel model with double-fixed effects is applied for discussion.It is concluded that executive compensation incentives are one of the significant influencing factors in the banking industry’s development.Furthermore,based on the estimation results of the overall industry model,a detailed case study is conducted on the leading commercial bank "Minsheng Bank." The findings are as follows:(1)From the perspective of the overall industry estimation results,the corporate value,debt-paying ability,operation,and growth capacity of commercial banks are positively correlated with executive compensation incentives.This confirms the incentive effect of executive compensation on the performance of listed commercial banks.However,the profitability of banks is negatively correlated with executive compensation incentives.(2)The role of executive compensation incentives in Minsheng Bank is consistent with the overall performance of the banking industry.Executive compensation incentives have contributed to enhancing the bank’s operating and profitability financial indicators but have a weaker impact on the bank’s long-term development capability.O verall,Minsheng Bank’s executive compensation incentive system has not established a connection with risk control,and there are flaws in the bank’s risk management.The bank may incur potential risks in its operations,leading to higher risk exposure and liability levels.Optimizing executive compensation incentives is essential to achieving sustainable profitability and long-term development for the bank.Based on these findings,the following recommendations are proposed: Establish a comprehensive and sound compensation disclosure system,construct a composite executive compensation performance evaluation system,and integrate short-term and long-term executive compensation incentive mechanisms to promote the sustainable development of the banking industry.