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Top Management Team Power Distribution, Pay Gap and Corporate Performance

Author: ShaoPengZuo
Tutor: MaoHongTao
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: TMT Power Distribution Pay Gap Performance Level Performance Fluctuation
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 52
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Abstract


The general manager or CEO of the company is often confined to the object of study by the traditional corporate governance theory, and they are considered to be the most important in the entire firm, and play an important role in the development of entire firm, however, top management team members are paid little attention. In fact, in any company, the important manager is not only the company’s general manager or CEO, but also others. On the contrary, any company has a top management team, and the top management team is the entire firm of the core of the decision, therefore, TMT is very necessary to give further study.On the one hand, because there are individual differences among TMT members.TMT contains rich information, and the difference of information will eventually lead to different performance. Before Finkelstein(1992),most of the studies concerned the difference of individual characteristics among the team members, such as education, age and so on. They think that there are rich information in these individual characteristics, and the rich information will have a certain impact on the enterprise, but paid little attention to the power of TMT. Obviously, in any company, different TMT members may have different power, and this may have an important impact on the behavior of TMT, and ultimately affect the performance of the company. Finkelstein (1992) studied the power of team from the source, and the paper based on his research, try to reveal influence about the distribution of TMT’s power on corporate performance. Also, there are more research about the level of enterprise performance, and this paper not only reveal influence on enterprise performance level, but also about fluctuation of enterprise, there maybe take a more comprehensive study about the distribution of power of the Top Management Team to enterprise.On the other hand, there are lots of researches about the incentive of TMT. Especially, our country is facing greater uncertainty. Because of the fierce market environment, the enterprise have to face more complex situation, and the enterprise may need to deal with all kinds of risk, this also put forward higher requirements for TMT. To a certain extent, there must have an excellent senior management team if an enterprise remains invincible in the fierce market competition. Since it is so important, how to set executive compensation incentives is the optimal for the whole team? Many scholars have carried on research, however, the conclusions are different. Some scholars support the tournament theory, and some researchers support the behavior theory, but they may overlook an important point:compensated incentive may present an necessary limitation. On the one hand, this paper pay attention to the salary incentive effect on corporate performance level; on the other hand, this paper also pay attention to the salary incentive effect on corporate performance volatility. It may help to set up a more comprehensive compensation scheme. And further combining the above, this paper analyses what about the original salary incentive effect considering the impact of internal power distribution of TMT? And that is enhanced or weakened? Therefore, it’s important for us to explore these issues.This paper takes2008-2010years SSE and SZSE listing corporation as a sample, and give an embedded analysis of the different degree of the pay gap, power distribution about TMT and interaction between the impact on enterprise performance levels and performance of fluctuation, considering the differences about the nature of equity. The empirical results show that:(1)There has positive relation between the distribution of power of TMT and corporate performance level. The distribution of power of TMT is more concentrated, the better corporate performance level. Considering the nature of the different concentration of equity, the distribution of TMT’s power of state-owned enterprise about the impact on the level of corporate performance don’t have more significant influence than non state-owned enterprise. On the contrary, the distribution of TMT’s power in non-state enterprises on corporate performance have more significant influence than state-owned enterprises. When the centralization of the distribution of TMT’s power improves performance level at the same time, whether transverse wave of enterprise performance or the longitudinal fluctuation are all increase, further study found that in the state-owned enterprises, the centralization of the distribution of TMT’s power have more influence on volatility of enterprise performance.(2)There has positive relation between TMT and corporate performance Level in China’s listed companies. That is said the enterprise applies to the championship. Because the corporate governance in our country is relatively weak, the championship incentive mechanism can reduce the cost of monitoring, but also can provide constant stimulation for the members of TMT. Considering the different nature of equity, compared with state-owned enterprises, there is the stronger correlation between non state-owned enterprise executive team’s pay gap and company performance level, indicating that the championship in non state-owned enterprises incentive effect is more obvious; when the pay gap of top management of internal is increasing, on one hand it improve corporate performance level, on the other hand it also caused the fluctuation of performance to increase. Taking into account the differences of equity, compared with state-owned enterprises, the executive pay gap within the team’s upgrade will bring performance more volatility in non state-owned enterprise.(3)There has positive relation between TMT and corporate performance level in China’s listed companies if the distribution of TMT’s power is concentrated, which the concentrating of the distribution of TMT’s power enhances the incentive effect of championship. On one hand it strengthen the role of TMT tournament mechanism, on the other hand, it also can make more significant between the pay gap of TMT of internal and the fluctuation of enterprise performance.The conclusion has important theoretical and practical significance for the listing corporation. The structure of this paper mainly includes the following parts:The first chapter, introduction. This part mainly introduces the research background, research significance, research content, research frame and method and possible innovation.The second chapter, literature review. This part defines TMT, and then give the relationship between characteristic of top management team and corporate performance, at the same time give the relationship between compensation gap of top management team and firm performance.The third chapter, the theoretical basis and research hypothesis. On the basis of TMT’s research in the past and current research, this part presents hypotheses to be tested in three aspects from the distribution of TMT’s power and corporate performance, and there also presents hypothesis about pay gap of TMT and corporate performance. At last, there also presents hypothesis about pay gap of TMT and corporate performance if the distribution of TMT’s power is considered.The fourth chapter, study design. According to the research question, this part design variable and data, finally established the empirical model.The fifth chapter, empirical test and regression analysis. By using empirical analysis model, this part analyses by descriptive statistics, correlation analysis, multiple regression analysis on the empirical test hypotheses, and return to the results of the corresponding analysis based on selecting the data.The sixth chapter, the research conclusions, policy recommendations and limitations. This chapter is the last chapter of this thesis, this part sum up the conclusion of general studies, and puts forward the corresponding policy recommendations according to the conclusions of the research through empirical analysis of the results of the regressions, finally the further research direction is pointed out in this paper.In this paper, the possible contributions are mainly in the following aspects:(1) Considering the previous research about TMT, there are more about the perspective of individual characteristics of executive team members. Specifically, there are lots of researches about TMT’s "heterogeneity". Most of the top management team of the articles researches the difference about the enterprise performance levels, from TMT members between the age of individuals. There is an important problem, and this problem may not cause enough attention-different members of the executive team have different power. After Finkelstein(1992), the study began to focus on the power of TMT, but there is less research on the distribution of TMT’s power, and the existing research are also considering effects of TMT’s power to the enterprise performance levels, and less consider the influence of power between the TMT members and the enterprise volatility. This paper starts from the distribution of TMT’s power between different members of TMT, discusses the influence of the distribution of power between the TMT members differences on enterprise performance levels. At the same time, putting the fluctuation of enterprise performance into the study, so there is a comprehensive study of the TMT power allocation for enterprises, and discusses the different ownership enterprises difference.(2) The previous research about TMT incentive, they think that only the members of TMT incentive have an impact on enterprise performance levels, but in real life, the enterprise pay incentive level may be a limitation, this paper will research the level of fluctuation, providing some comprehensive reference for the formulation of the compensation scheme of enterprise.(3) This paper give the effect of distribution of TMT’s power on salary incentive. The distribution of TMT’s power may have to be considered when talk to the compensation plan, studying the distribution of TMT’s power under the incentive pay probably has more theoretical significance and realistic significance.(4) Measuring the distribution of TMT’s power may also have some significance. In this paper, based on the Finkelstein (1992), Liu Bing (2011) studies,7indicators for the unit with the enterprise top management team members were used from each enterprise, and then use SPSS software to adopt the principal component analysis method to calculate the comprehensive scores of each member of the executive power, and take the enterprise as a unit to calculate the comprehensive score of power standard deviation, using the standard deviation to measure the distribution of power between the members of TMT.(5) According to the conclusion of this article, the configuration of TMT’s power is proposed in this paper, at the same time there need for more comprehensive consideration of the fluctuation of enterprise performance when making the compensation plan, and finally there consider between pay gap of TMT and corporate performance if the distribution of TMT’s power is considered, which may have a certain degree of reality.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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