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Research on Relation of Executive Compensation Mode and Company Performance

Author: LinKe
Tutor: DaiYiSheng
School: Jiangsu University of Science and Technology
Course: Management Science and Engineering
Keywords: Executive compensation compensation gap enterprise nature of ultimateownership corporate performance
CLC: F272.92
Type: Master's thesis
Year: 2013
Downloads: 1
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Abstract


With the continuous development of China’s market economy, modern enterprises’ownership and management rights have been separated which leads to the increasingattention of the incentive pay of these companies’ senior managers. And the informationasymmetry between owners and company executives leads to problems such as a risk ofmoral, adverse selection. How to enable the executives meet their own interests as well asultimately maximize the value of their companies, so as to achieve a win-win situation.Those questions caused much concern.There are many executive compensation modes, including executive compensation,executive pay gap and so on. Appropriate executive compensation mode can coordinate theinterests of executives and majority of shareholders, reduce agency costs and improvecorporate performance. In this paper, a method of combining normative analysis andempirical analysis has been applied. The first part of this paper is a review and evaluation ofthe literature on executive compensation issues at home and abroad. Which reviewed theexecutive pay model and the correlation of the performance from the perspective ofprincipal-agent theory, tournament theory and sustainable growth theory, the theoreticalanalysis and the characteristics of the real estate industry, based on those the relevant theoryand perspectives, further researches has been carried out in view of basic features of realestate industry and the relationship between the model and company performance.189setsof data from63listed real estate companies between2009and2011are selected as researchobject, and results shows that China’s real estate executive pay is high, but pay gap is large.Combined analysis of the influencing factors company performance and executive pay,seven assumptions were proposed. In this paper, we selected executive pay, executive paygap, company performance, company size, rate of corporate assets and liabilities, the size ofthe board, the final control human nature, the proportion of independent directors and othervariables to establish a multiple linear regression model. The empirical results show that tostate-owned enterprises, ROE which represent the company performance is positivelyrelated to executive pay, while are negatively to the size of the company; the sales growthwhich represents the company’s performance is positively related to executive pay;executive pay is positively related to ROE, and the size of the company. To thenon-state-owned enterprises, the ROE which represents company performance is positively related to executive pay, executive pay gap, the proportion of independent directors; salesgrowth represents the company performance is positively related to executive pay, executivepay gap and the asset-liability ratio; executive pay is positively related to ROE and the sizeof the company.It can be seen that the basic formation of "reward-performance" contract, but there areproblems like the irrational executive pay structure, imperfect corporate governancestructure. In the conclusions of the empirical study, relevant policy recommendations havebeen made for state-owned enterprises and non-state-owned enterprises respectively whichprovide empirical support to develop the perfect incentive pay system for China’s real estateenterprises.

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CLC: > Economic > Economic planning and management > Enterprise economy > Enterprise planning and management decision - making > Corporate Administration > Personnel Management
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