Frontiers in Finance Volume 1, 2015 www.seipub.org/ff
Research on CEO Compensation Stickiness of Chinese Listed Companies Empirical Evidence from the Different Situations of Profits and Losses Xiude Chen1, Yulian Peng2, Feiyan Liu3, Jiang Xu4 School of Management, Guangdong University of Technology, Guangzhou Guangdong P.R.China School of Management, Guangzhou College of South China University of Technology, Guangzhou Guangdong P.R.China School of Management, Guangzhou College of South China University of Technology, Guangzhou Guangdong P.R.China School of Management, South China University of Technology, Guangzhou Guangdong P.R.China vinkchen@sina.com; 2yulian.peng@mail.scut.edu.cn; 3liufeiyan@mail.scut.edu.cn; 4jiangxu@mail.scut.edu.cn
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Abstract This paper studies the stickiness of CEO compensation by verifying the existence of asymmetric relations between CEO compensation change and corporate performance in Chinese listed companies during 2006 to 2009, the results show that the marginal increase of CEO compensation in the case of corporate earnings is to be significantly greater than the marginal reduction in the case of corporate deficit, which is tantamount to say that the stickiness of CEO compensation exists. Further research finds that the stickiness of CEO compensation in Chinese listed companies has not yet demonstrated significant time‐ varying trends; but there is sign of increasement. We also find that the stickiness of CEO compensation can be suppressed by improving regional marketization, shareholding system reform and diversified equity of state‐owned companies, supervision of government, media and general public, and matrix control strategy. Keywords CEO Compensation; Performance; Compensation Stickiness; Sensitivity
Introduction Since the global subprime crisis broke out in 2008, operating performance of many listed companies both domestic and overseas declined sharply; but their executives still got “high salaries as rewards”, which caused much dissatisfaction in public and sparked controversy in business world and academia against the topic whether the CEO compensation is strictly linked to corporate performance or not. Principal‐agent theory suggests that when information is asymmetric, it is wise to bind CEO compensation together with corporate performance to motivate managers to operate the company based on value of maximizing company interest. But the reality is far beyond the theoretical expectations, not only the reality of the CEO incentive compensation practice shows more and more compensation chaotic phenomena, such as “pay without performance” and “poor temple with rich monks”, but also the debate in theorists on whether there is a significant correlation between CEO compensation and corporate performance has never stopped. However, as relevant studies go deeper, “CEO compensation stickiness” has increasingly become the focus issues of scholars in recent years. CEO compensation stickiness is that the marginal increase of CEO compensation in case of performance increase is greater than the marginal decline of CEO compensation in case of performance decline, the sensitivity of CEO compensation relative to corporate performance is in a selective asymmetry state. The earliest discussion of CEO compensation stickiness can be traced back to the late 1990s, for example, when Gaver & Gaver (1998) analyzed the performance data of CEO from American top 500 listed companies announced by Forbes, they found that CEO could obtain more compensation in case of corporate’ performance increase, but their compensation didn’t reduce accordingly in case of corporate’ performance decline[1]. The non‐operating income growth pushed up CEO compensation, but non‐operating loss did not cut CEO competition. Non‐symmetry characteristics of sensitivity of performance‐compensation had been found again when Leone, Wu & Zimmerman (2006) inspected the
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