Frontiers in Finance Volume 1, 2015 doi: 10.14355/ff.2015.01.002
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The Effect of Managerial Power in Executive Compensation Contracts Empirical Evidence from China's Capital Market Xiude Chen1, Feiyan Liu 2, Yulian Peng 3 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 vinkchen@sina.com; 2liufeiyan@mail.scut.edu.cn; 3yulian.peng@mail.scut.edu.cn
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Abstract This paper applies the sample of the Chinese listed companies during 2004 to 2010, and tests the effect of managerial power in executive compensation contracts by analyzing the relationship between managerial power and compensation levels. It is found that managerial power has a significant positive impact effect on monetary compensation and perks, and the effect of managerial power in China's capital market is confirmed. Further studies show that corporate ownership has a significant moderating effect on the effect of managerial power. Specifically, the effect of managerial power in executive compensation contracts has different levels of existence both in the state-owned and private enterprises, but State-owned enterprises are more prominent. In the local state-owned enterprises, executives prefer to grab the monetary private benefits by using their power, while in the central state-owned enterprises; executives prefer to grab perks and other non-monetary private benefits by using their power. Keywords Executive Compensation Contracts; Monetary Compensation; Perks; Managerial Power
Introduction As executive compensation incentive has been a hot topic which gains much concern in Company Financials academia, many scholars at home or abroad conducted a amount of theoretical and empirical research on the issue.(Murphy, 1999; Grinstein and Hribar, 2004; Wei Gang, 2000; Du Xing-qiang and Wang Li , 2007).From the perspective of existing literature, the majority of researches on executive compensation incentives are based on the optimal contract theory, in which the common assumption is that there is a "fair trade" contract platform between the senior executives and the board, where both sides can get fair trade results on actual compensation of senior executives by bargain. The problem is whether the "fair trade" platform between the Board and the senior executives exists inevitably? Graef (1991), Monks and Minow (2001), have given a negative answer to the question in their studies. As a result, scholars outside of China come to realize that there is another possibility in executive pay-setting process that executives have enough motivation and ability to twist the Board’ role in executive paysetting process, so as to affect the compensation contract making process, even achieve the purpose of customizing compensation for themselves. (Bebchuk and Fried, 2003; 2004). In the early 1980s, China's state-owned enterprises began to implement the enterprise reform of "devolution of power". The essence of the entire reform process was the decentralization of government power gradually and formation and expansion of corporate managerial powers constantly. Chinese enterprises, especially state-owned enterprises, is exposed to a dual environment with system restructuring and governance weakening, where "internal control" problem is particularly prominent, resulting in the managerial powers overriding governance mechanism of corporate, so that the managers have the absolute influence in the formulation of their salary, laying theboard and the controlling shareholder aside.(Lu Rui, 2008; Quan Xiao-feng et al., 2010). In recent years, with the deepening of market reforms, some scholars believe that performance-compensation system has been initially
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established (Xin Qing-quan and Tang Wei-Qiang, 2009) in Chinese listed companies. From a macro perspective, although compensation incentives mechanism does some contribution to improving operating results of listed companies in China, its practical effect is mainly reflected in enhancing the executive’s compensation greatly, not bringing in growth on corporate earnings at the same proportion. Especially during the global financial crisis in 2008, China's capital market shows an chaotic scene of "astronomical salaries" coexisted with "zero salary" to the public which undoubtedly raises question in crowd: who decides on executive pay of Chinese listed companies exactly? In summary, it’s easy to find that the management incentive mechanism based on optimal contract theory is too idealistic in the specific management practice. As the "absence of owner" and "internal control" phenomenon are widespread in China's listed companies, it is likely to provide fertile soil and a great opportunity for the behavior of executives customizing compensation for them own. Accordingly, studies on incentive compensation of executives of listed companies in academia should take managerial power factor into consideration instead of starting off merely from the ideal optimal contract theory. Unfortunately, until very recently that few scholars began to pay attention to the impact of managerial power on executive compensation contracts. (Wang Ke-min and Wang Chao, 2007; Lu Chang-jiang and Zhao Yu-heng, 2008). Therefore, on the basis of existing research, this paper intends to break the traditional thinking framework of optimal contract theory, rooting in the objective fact that the managers can affect board decisions, to re-examine executive’s incentive compensation problems of listed companies from perspective of managerial power theory. Theory Analysis and Hypotheses Separation with asymmetric information from residual control rights to residual claims spreads widely in modern corporate, which causes agency problems between shareholders and managers. To solve the problem of agency, executive incentive compensation plays an important role as a company's internal governance mechanism. Since the beginning of the 1920s, a lot of theoretical and empirical studies (Taussings and Baker, 1925; Jensen and Murphy, 1990; Denis et al, 2006, etc.) on the issue of executive compensation and Bebchuk and Fried (2003) proposed two theories of executive compensation decisions contract: Optimal contract theory and power management theory. Based on alleviating agency problems and avoiding managers’ decision-making behavior from deviating the objective of maximizing shareholder value , the optimal contract theory holds the conclusion that in the condition of Board’s effective negotiations, under the premise of effective market discipline and shareholders fully exercising their powers, it works to motivate managers to act based on the maximization of shareholder wealth through effective management of contractual arrangements to linked managers’ salary to shareholder wealth closely. (Jensen and Meckling, 1976). According to the logic of optimal contract theory, an effective compensation contracts binding executive compensation with corporate performance is thus contributing to convergence of the two objective functions of the managers and the shareholders. As a result, executive compensation and corporate performance should be positively correlated and the effectiveness of the of compensation contract which can be verified by analyzing the results of relevance between executive compensation and corporate performance or the sensitivity of executive compensation (Jensen and Murphy, 1990). Indeed, there are many studies which do support the optimal contract theory, but also a large number of domestic and international experience in literature deliveries different findings, such as in low sensitivity or even irrelevant of the relationship between executive compensation and corporate performance (Jensen and Murphy, 1990; Aggarwal and Samwich, 1999; Wei gan, 2000; Gu Bin and Zhou Li-ye, 2007, etc.), which can’t be explained by optimal contract theory. Instead, the managerial power developed recently gives a possible theoretical explanation that the compensation contractual arrangements for senior executives do not solve the agency problem inevitably, because itself is a part of the agency problem. (Bebchuk and Fried, 2002; 2003; 2004). Managerial Power Theory emphasizes that the reality of relationship between corporate executives and the board is far beyond the expectation of optimal contract theory, due to the existence of power management, the board can not completely control the design and implementation of the executive compensation contract, on the contrary, which is likely to be affected and even captured by the executives so as to affect or customize their own compensation contract to a large extent. Inspired by this idea, scholars outside China took the initiative to test the relationship between the executive’s power and
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the compensation. Grinstein and Hribar (2004) found that the merger of corporate driven by power could bring more bonuses which were not performance-related to managers; By analyzing samples of 1394 salary contracts from 17 different countries, Berrone and Otten (2008) found that executive powers had a significant impact on compensation contracts in different countries, which drew the conclusion that "managerial power " theory had universal adaptability in the world; Fahlenbrach (2009) measured the executives’ power by using indicators of two jobs concurrently, CEO tenure, the proportion of institutional ownership, board size and independence to find the CEO power significantly increased the total executives’ salary; Morse, Nanda and Seru (2011) research pointed out that the, CEO tend to get higher salaries in the case of the larger size of the board or more outside directors CEO appointed in the board. China is experiencing gradual market-oriented economic reforms, which energize the development of state-owned enterprises by the decentralization of government power, and give rebirth to the private economy to change the state from verge of disappearing to the unprecedented development. The essence of devolution of power reform in Chinese state-owned enterprise is the process of accumulation and expansion of executive managerial power, coupled with the central or local government transferring business decision-making power from top to bottom by extending Pyramid equity hierarchy, correspondingly resulting in the SOE executives powers strengthened unprecedented; market-oriented reforms contribute to liberalization and encouragement of the private economy, not only providing necessary policy conditions for expansion and formation of the powers of the owners or executives of private business, but also stimulating the congenital desire for power of private business owners. In contrary to the more comprehensive corporate governance in the United States and other countries, China’s corporate governance mechanism is far from perfect. In the case of weak corporate governance, where failure or lack of supervision of restraint mechanisms happens, executives as "internal person" essentially control the corporate, raising serious "internal control" issues. (Masahiko Aoki and Qian Ying-yi, 1995; Yang Rui-long and Zhou Ye-an el at., 1998). At the same time, the bargaining power of the board is often undermined by the constraints of reality, market reputation constraints are difficult to implement when managers market is missing or in immature state. The existence of this series of factors leads to the usage of the powers of corporate executives prevailing over corporate governance mechanisms, creating favorable conditions for behavior of grabbing private interest in implementing institutional change of compensation incentives. Currently, there are some scholars in China trying to analyze the effect of executive power used in compensation contract in Chinese listed companies under the guidance of the managerial power theory. Compared to Western countries, Chinese companies executive compensation contract show its own features: single form of compensation, mainly based on monetary salary. Knowing that, the domestic scholars mainly studies the relationship between the managerial power of executives and monetary compensation. Lu Rui (2006) found that power-type executives got higher monetary compensation, and further pointed out that the executive power expanded currency the pay gap while did not bring in a better performance; Wang Ke-min and Wang Chao (2007) found that increased control power of executives would increase executive’ pay levels in their analysis of relationship between control power and salary; Lv Chang-jiang and Zhao Yu-heng(2008) found that the power-type executive could make incentive compensation packages by himself; Dai bin et al. (2011) explored the impact of managerial power to executive compensation contract of stateowned enterprises, where he found in the managerial power of executives could significantly improve not only their monetary pay levels, but also could grab more lucrative or private pay benefits from overusing power. Obviously, the conclusions above all support the theory of managerial power. Therefore, under the condition of the "absence of the owner," weak corporate governance, and inefficient external governance mechanisms, the executives of listed companies in China is likely to use their managerial powers to override the corporate governance mechanism through "capturing" the Board and other means, expending rent-seeking space, relating a variety of interests to ultimately improve their monetary salary levels. According to Williamson (1964) et al., it is one of the main goals of manager to pursue for more perks while getting high monetary compensation. Rajan and Wulf (2006), Jiang Fu-xiu and Zhang Min (2009) and Chen et al. (2010), found in the latest study that perk is not just a kind of manifested agent concept, which also is able to play a positive incentive effects to managers, and is equivalent to hidden monetary compensation to some extent.
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Especially in the case of executives pricing generally underestimated, executives gain relatively less monetary compensation directly from the enterprise, leading to their greater dependence of perks (Jiang Fu-xiu and Huang Ji-cheng, 2011).In addition, due to the long-standing compensation regulation, executives in state-owned enterprise have suppressed their desire for monetary compensation for a long time, in order to reduce anger costs and add consideration to political future, and they choose perks as subtle alternative for more monetary compensation.(Quan Xiao-feng, 2010). Therefore, the perk has become an important part of managers’ compensation in China's listed companies. Based on this background, the few scholars explored the relationship between the managerial power and perk, such as: Lu Rui (2008) considered that there was possibility of using managerial power to influence the implementation of opportunistic behavior to conduct over-the-perks; Lv Changjiang and Zhao Yu-heng (2008) considered that although salary of SOE managers faced rigid long-term control, but with the ever-expanding managerial power, compensation regulation brought more incompatibility in incentive, for which managers will use their position power to pursue monetary and non-monetary (mainly in perks form) private gain. Based on the above analysis, the set of hypotheses is therefore formulated as following: H1: Other conditions remain unchanged, the managerial power and executives compensation are related, which means the greater managerial power, the higher the amount of actual compensation obtain. H1-a: The bigger managerial power, the higher the amount of actual monetary salary obtain. H1-b: The managerial of power, the higher the amount of perks. Research Design Data Collection China A-share listed companies during 2004-2010 are selected as samples, and the original sample is screened according to the following standards: (1) Excluding financial and insurance listed companies; (2) Excluding companies without or is lack of research data of financial and corporate governance; (3)Excluding samples with no or incomplete disclosure of ultimate controlling shareholder( because this article choose ultimate controlling shareholder as determine factor to justify the nature of ownership enterprise); (4) to eliminate the effect of outliers, mainly continuous variables are pretreated, that means samples located at 0-1% and 99% -100% interval are winsorized already. A sample of 7949 observations of monetary salary and 5,322 observations of perk groups ultimately is collected as the above screen standards. Executive compensation and financial data in this paper primarily come from Wind Chinese financial database; corporate governance data, the average annual wage for urban workers from all Chinese provinces mainly come from GTA (CSMAR) database. Indicators to measure the managerial power (such as general manager tenure, the proportion of internal directors in board, and the depth and width of pyramid control chain etc.) are collected and sorted manually based on the original data come from the annual reports of listed companies, related information from authority and financial industry. Variable Definition The explainable variable in this article is executive compensation variable, and can be divided into monetary compensation and perks: (1) Actual monetary compensation of executive (Pay), measured by the total amount of "the top three highest-paid executives' revealed in annual reports of listed companies. (2) Actual perks of executives (Perk), it’s a kind of indirect measure indicator of whose amount equals to the total managerial fee disclosed in annual report minus those items that are unrelated obviously to the perks, such as charges to directors, charges to officers, salaries of members in Supervisory Board, provision for bad debts, provision for inventory impairment and amortization of intangible assets.(Lu Rui, 2008; Quan Xiao-feng et al., 2010; Wan Hua-lin, 2010). The main explanatory variable of this paper is the managerial power (Power). Based on the institutional
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background of Chinese enterprises, learning from Finkelstein (1992), Lu Rui et (2008), Fan et al. (2009), Quan Xiaofeng et al. (2010 ) and other research, this paper measures the managerial power level mainly from five aspects as following: (1) Structure of managerial power, when general manager is not a director at the same time, the value of 1; while the general manager is also the director, the value of 2; while the general manager is also the chairman of the board, the value of 3, and the greater the value of the index means the greater managerial power. (2) The term of general manager, measured by the tenure span of general manager working on the job, and that means the longer the term the greater of managerial power. (3) Size of the Board, the value of each of the Board , according to the Albuquerque and Miao (2008) and Weian et al. (2009) suggested in their studies, the larger the size of the board the greater of managerial power. (4) Proportion of internal directors, the higher the proportion of internal directors the greater of managerial powers. (6)Actual controller’ s control depth of pyramid chain to the target company, the value is the maximum hierarchyof the pyramid control chain,which means the greater the value the greater of managerial power. Firstly, using entropy method to determine objectively the right weights of every index above five, base on which an integrated managerial power indicator—Power is combined by five indexes. In addition, to minimize the impact of other factors in the model, other factors have to be controlled during the study, such as accounting performance (Roa), market performance (Ret), company size (Lnsize), financial leverage (Lev), the company's growth (Growth), The operating risk (Risk), the largest shareholder stake (Top1), executives are holdings (Share), the average annual wage for urban workers each region (Lnaveragewage), industry (Industry) and year (Year). Model The following general panel data model is to be used to test all the hypotheses above: n α + β Power + ∑ γ Control + ε Y = 0 1 it it it i it i =1
(1)
Where: in the empirical model, Y represents for executive compensation variable; Control represents for control variable; ε represents for random error term; α , β and γ represents for parameters to be estimated. Through the estimated of the model (1) to test the effects of managerial power to executive compensation contracts, and if the research hypothesis and its sub-hypothesis is true, then the sigh of β1 is expected to be significantly positive. TABLE 1 THE DESCRIPTIVE STATISTICS FOR THE MAIN RESEARCH VARIABLES
Column A
B
C
D
E
Variable Pay Perk Power Pay Perk Power Pay Perk Power Pay Perk Power Pay Perk Power
Mean 101.240 30300.00 4.04 103.12 39000.00 4.10 121.41 74800.00 4.09 95.47 21800.00 4.10 97.15 10700.00 3.93
Sd 101.14 204000.00 0.85 103.20 245000.00 0.86 118.90 422000.00 0.79 94.84 45700.00 0.89 96.43 14800.00 0.81
Min 1.08 79.63 1.80 2.69 79.63 1.80 3.00 439.12 2.20 2.69 79.63 1.80 1.08 164.03 1.80
Max 1520.00 6570000.00 9.20 1520.00 6570000.00 9.20 1520.00 6570000.00 7.40 1520.00 1010000.00 9.20 1010.00 303000.00 8.40
Note: Column A-E is the descriptive statistics for executive compensation and managerial power of the whole sample, State-owned enterprises, central state-owned enterprises, local state-owned enterprise and private enterprises respectively.
Results Descriptive Statistics The detailed descriptive statistical results of the main research are shown in Tab.1. The descriptive statistics results in Tab 1 show that: (1) the level of executive compensation polarization seriously. The mean value of executive 13
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actual monetary compensation is 1, 012,400 RMB, the lowest salary is only 10,800 RMB, but the highest salary is 15.2 million RMB, the highest monetary salary is as 1400 times as the lowest salary; the mean value of executives actual perks is 303 million RMB, and the lowest perks amounted to 796,300 RMB, the highest perks is 65.7 billion RMB, which reflects great randomness of executives compensation of listed companies. (2) Executive perks is much higher than the amount of monetary compensation, merely judging from the mean value, the former one is as 300 times as the latter one, which shows perks plays an important role in executive compensation system of China's listed companies. (3) The mean value of managerial power is 4.10, with a minimum of 1.80 to a maximum reached 9.20; there is a big difference in power size between fellow executives of listed companies. (4) There are some differences in executive compensation and the distribution of managerial power in enterprises of different ownership, showing that the state-owned enterprise executives with higher compensation and managerial powers, most prominently in the central state-owned enterprises. Grouping Inspection of Managerial Power In order to test the impact of managerial power to executive compensation, the median of managerial power composite index is chosen as the critical value to divide the whole sample into the smaller managerial power group and the larger managerial power group; the executives’ actual monetary compensation, and executives ‘actual perks are examined by group mean and median test, of which detailed results shown in Tab 2. Grouping test results show that the mean value of actual executives actual monetary compensation variable in the larger managerial power group is 115.68 million RMB, with the mean actual perks 3660 million RMB; the mean value of actual executives actual monetary compensation variable in the smaller managerial power group is 85.71 million RMB, with the mean actual perk 2400 million RMB. It’s easy to see that the mean value of actual executive’s actual monetary compensation variable in the larger managerial power group is significantly bigger than that in the smaller managerial power group, basically passing the test of significance. The grouping median test results are basically consistent with the mean test results. Accordingly, it’s inferred that the basic hypothesis of this paper established, which means corporate executives with big managerial powers can gain higher actual monetary compensation and perks. TABLE 2 THE GROUP MEAN AND MEDIAN TEST RESULTS OF EXECUTIVE COMPENSATION VARIABLES
Column Mean test Median test
Variable Pay Perk Pay Perk
Larger Power Group 115.68 36600.00 84.66 10600.00
Smaller Power Group 85.71 24000.00 64.84 7580.00
Differences 29.97 (178.15***) 12600.00 (5.07**) 19.82 (15.10***) 3020.00 (11.93***)
Note: the unit of executive compensation variable is million RMB; ** Significant at 5%; *** Significant at 1%.
Regression Results and Analysis The detail results of test which inspects the relationship between and managerial power and to execute actual monetary compensation, by using the whole sample and the grouping sample divided by the nature of corporate ownership are shown in Tab 3. The regression coefficient of managerial powers estimated from the whole sample is 0.063, with significant level at the 1%, which indicates that the managerial power has a significant positive correlation with the executive actual monetary compensation; namely greater managerial power leads to higher the amount of monetary compensation executives actually get, and each unit increase of managerial power, will be followed by 0.063 units increase (logarithmic form) the actual monetary compensation of senior executives, which shows that the managerial power has an important impact of the executive’s actual monetary compensation. Viewing from the results grouping regression analysis, regression coefficients of managerial power are all positive and significant, no matter estimated from which sample, state-owned enterprises, the central state-owned enterprises, local state-owned enterprises or private enterprises, which indicated there was positive correlation between the managerial powers and executive’s actual monetary compensation existing in all enterprises regardless of their different ownership; in other words, the behavior of executives by using managerial power to enhance their influence on monetary compensation is universal in Chinese of listed companies.
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TABLE 3 REGRESSION ANALYSIS RESULTS OF MANAGERIAL POWER AND EXECUTIVE’S ACTUAL MONETARY COMPENSATION
Item Constant Power Roa Ret Lnsize Lnwage Lev Growth Risk Industry Year N R2
Column A 8.251*** (33.843) 0.063*** (6.966) 0.011*** (11.997) -0.000 (-0.384) 0.242*** (22.416) 0.089*** (6.600) -0.003*** (-6.316) 0.000 (0.278) -0.001** (-2.453) √ √ 7,949 0.371
Dependent variables: executive’s actual monetary compensation (Lnpay) Column B Column C Column D 9.044*** 9.198*** 9.075*** (31.102) (20.253) (23.540) 0.064*** 0.053*** 0.070*** (6.482) (3.068) (5.818) 0.014*** 0.016*** 0.012*** (12.176) (8.616) (8.949) -0.000 -0.000 0.000 (-0.191) (-0.611) (0.263) 0.212*** 0.201*** 0.215*** (16.625) (9.990) (12.752) 0.070*** 0.072*** 0.061*** (4.560) (3.122) (2.965) -0.003*** -0.002** -0.003*** (-4.168) (-2.246) (-3.885) -0.001** -0.010 -0.001** (-2.551) (-1.478) (-2.505) -0.001** 0.000 -0.002*** (-2.162) (0.257) (-2.805) √ √ √ √ √ √ 5,440 1,605 3,835 0.398 0.461 0.371
Column E 7.103*** (14.072) 0.048*** (2.578) 0.006*** (3.975) -0.000 (-0.961) 0.285*** (12.521) 0.159*** (5.553) -0.003*** (-3.529) 0.000 (0.015) -0.001 (-1.190) √ √ 2,509 0.333
Note: Column A-E is the regression result of the whole sample, State-owned enterprises, central state-owned enterprises, local state-owned enterprise and private enterprises respectively. ** Significant at 5%; *** Significant at 1%.
However, the paper is also found that the effect of managerial power to executive compensation contract has some distinct differences in enterprise of different ownership, for example, the regression coefficients of managerial power estimated from the state-owned enterprises and private enterprises are respectively 0.064 and 0.048, and thus relative to private enterprises, for executives, the extent of using managerial power to influence their monetary compensation in state-owned enterprise seems to be significantly stronger; the regression coefficients of managerial power estimated from the central state-owned enterprises and local state-owned enterprises are respectively 0.053 and0.070, and thus relative to central state-owned enterprises, for executives, the extent compensation in local state-owned enterprise seems to be significantly deeper. To sum up all the test results, the hypothesis H1-a in this study is verified. From the results (see Tab 4) of regression analysis of managerial power and executives actual perks, the coefficient of managerial power estimated from the whole sample is 0.0263, and highly significant, which suggests that executives’ managerial power is significant positive related to perks in whole. Then from results of grouping regression analysis, the coefficients of managerial power estimated from the state-owned enterprises, the central state-owned enterprises, the local state-owned enterprises and private enterprises are respectively 0.031, 0.040, 0.034 and -0.013, only the first two coefficients are significant at 5% and 10% significance level. It can be seen that the actual positive impact of executives’ managerial power to the perks only exists significantly in the central state-owned enterprises, which is not significant in the local state-owned enterprises and private enterprises. An explanation to the results of this difference in this paper is: on the one hand, congenital defect of corporate governance of state-owned enterprises provides executive with an opportunity of abusing of managerial power; on the other hand, the executives in central state-owned enterprises suffer a long state strict compensation regulation imposed by the central government, coupled with institutional constraints, public pressure and stronger degree of administrative intervention, facing higher social "angry costs" of improving their monetary compensation and thus resort to perks and other non-monetary compensation as its alternative choice. Under the state-owned enterprise reform strategy of " to invigorate large enterprises while relaxing control over small ones ",it is different from the central state-owned enterprises that mode of operation of the local state-owned enterprises gradually shift to a market-oriented operation, and executives’ compensation in private enterprises is mostly determined by the market mechanism, so that the motivation of covering compensation by perks of executives in local state-owned
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enterprises and private enterprises is relative weaker. Therefore, the hypotheses H1-b assumed in this article basically get verified. TABLE 4 REGRESSION ANALYSIS RESULTS OF MANAGERIAL POWER AND EXECUTIVES ACTUAL PERKS
Item Constant Power Roa Ret Lnpay Lnsize Lnwage Lev Growth Share Industry Year N R2
Column A -0.670 (-1.110) 0.026** (2.038) 0.006*** (5.513) 0.000 (1.308) 0.094*** (6.448) 0.702*** (54.900) 0.195*** (3.558) 0.003*** (6.262) -0.000** (-2.554) 0.068*** (3.050) √ √ 5,322 0.706
Dependent variables: executive’s actual monetary compensation (Lnperk) Column B Column C Column D -1.105 -0.597 -1.505 (-1.559) (-0.651) (-1.291) 0.031** 0.040* 0.034 (2.062) (1.859) (1.431) 0.008*** 0.008*** 0.010*** (6.196) (5.727) (2.986) 0.000 0.000 -0.000 (0.783) (1.262) (-0.315) 0.096*** 0.127*** 0.055 (5.151) (5.838) (1.494) 0.687*** 0.633*** 0.801*** (44.311) (31.312) (30.658) 0.268*** 0.281*** 0.161 (4.142) (3.470) (1.507) 0.003*** 0.004*** -0.003* (4.331) (5.550) (-1.682) -0.000** -0.000** -0.000 (-2.174) (-1.967) (-0.883) 0.052* 0.049 0.062 (1.917) (1.450) (1.328) √ √ √ √ √ √ 3,686 1,199 2,487 0.795 0.651 0.610
Column E 0.886 (0.773) -0.013 (-0.504) 0.001 (0.248) 0.000 (1.203) 0.113*** (4.799) 0.701*** (27.818) 0.035 (0.351) 0.002*** (3.789) -0.000 (-1.015) 0.101*** (2.648) √ √ 1,636 0.546
Robustness Test This article has done soundness testing in two aspects: Firstly, we chose the" total compensation of top three directors " as a substitute index for"total compensation of top three executives ", replaced "actual perks of executives " for "average actual perks of executives", Selected executives' actual compensation as new explanatory variables, and re-estimated empirical model (1), and then found the regression results unchanged essentially. Secondly, we took the sub-index composite index that constitutes the managerial power variables as proxy variables of managerial power, and repeated the regression analysis, in which way we got basically the same conclusions. Therefore, the main conclusions of this study were relatively stable. Conclusions Based on the institutional background of executives’ managerial power continued enhancing in Chinese enterprises during the transformation period, This paper selects the sample of the Chinese listed companies during 2004 to 2010, and tests the effect of managerial power in executive compensation contracts by analyzing the relationship between managerial power and compensation levels. Empirical evidence shows that, on the whole, the managerial power has a significant positive impact effect on monetary compensation and perks, and the effect of managerial power in China's capital market is confirmed, which means the greater managerial powers of executives the amount of monetary compensation and perks acquired from the enterprises will be higher. Further studies show that corporate ownership has a significant moderating effect on the effect of managerial power. Specifically, the effect of managerial power in executive compensation contracts has different levels of existence both in the state-owned and private enterprises, but State-owned enterprises are more prominent. In the local state-owned enterprises, executives prefer to grab the monetary private benefits by using their power, while in the central state-owned enterprises; executives prefer to grab perks and other non-monetary private benefits by using their power. Of course, the paper also has some disadvantages: (1) the managerial power is actually a latent variables, which
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cannot be observed directly. While this article measures managerial power in five dimensions: whether general manager and chairman of the board serve as one or two, general manager tenure, board size, the proportion of internal directors in board and control depth of the pyramid chain, but fail to make power factors completely stripped out from the corporate governance as the studies of Lu Rui and Quan Xiao-feng et al., thus missing other powers constitute factors. (2) The executives’ compensation discussed in this paper mainly includes the explicit monetary salary and implicit perks, excluding compensation in the form of equity. Therefore, the paper can’t confirm the existence of effect of executives’ managerial power on equity compensation contract and its determinants factors, which may be improved continuously in the future research. ACKNOWLEDGMENT
The authors acknowledge financial support from the National Natural Science Foundation of China (71102052), the Postdoctoral Science Foundation of China (2013M531827), the Philosophy and Social Science Planning Project of Guangdong Province (GD13YGL01) and the Department of Education funding projects of Guangdong Province (2013WYM_0014). The authors would like to offer their most sincere thanks to the anonymous reviewers and the editors, for their insightful comments. The authors will take full responsibility for the paper. REFERENCES
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