Top executive compensation and firm performance : a comparative analysis of SOEs and non-SOEs in China

Pao Yue-kong Library Electronic Theses Database

Top executive compensation and firm performance : a comparative analysis of SOEs and non-SOEs in China

 

Author: Wang, Wenhua
Title: Top executive compensation and firm performance : a comparative analysis of SOEs and non-SOEs in China
Degree: D.B.A.
Year: 2017
Subject: Hong Kong Polytechnic University -- Dissertations
Executives -- Salaries, etc -- China
Corporate governance -- China
Government ownership -- China
Department: Faculty of Business
Pages: 4, 66 pages : color illustrations
Language: English
OneSearch: https://www.lib.polyu.edu.hk/bib/99102198
URI: http://theses.lib.polyu.edu.hk/handle/200/9151
Abstract: This thesis studies the role of top executive compensation in Chinese state-owned enterprises (SOEs) and non-SOEs. Recently, Chinese regulators are concerned about the fast growth of top management compensation in SOEs and issued a new policy to restrict the growth. I start with examining the determinants of top management compensation growth in SOEs and non-SOEs. Based on the important differences in corporate governance practices and enterprises' objectives between firms with the government as a controlling shareholder and purely profit-driven firms, I hypothesize that the growth in compensation is largely driven by firm performance in non-SOEs and by the firm size growth in SOEs. I find that performance explains top managers' compensation growth in both types of enterprises, with the stronger effect observed in non-SOEs, while firm size growth triggers compensation increases only in SOEs. This result is consistent with the government's motivation to grow SOEs "larger and stronger", and with non-SOEs' alignment with shareholders' interests to pursue profitable growth. Next, I address how the compensation gap between top managers and other employees could affect firms' performance. According to the managerial talent theory, high salary is provided to skillful managers who are likely to generate higher profits, and therefore the compensation gap is expected to be positively related to profit. On the other hand, SOEs are traditionally considered as owned by whole people of the country, and a high compensation gap is perceived as unfair and results in lower morale and productivity of employees, as implied by the sociological theory. My empirical results show that the effect is positive in both SOEs and non-SOEs, but weaker in SOE firms. This finding suggests that the positive effect predicted by the managerial talent theory is partially offset by the negative effect predicted by the sociological theory. Therefore, high compensation of top management is associated with higher productivity, and placing constraints on compensation growth in SOEs can dampen firm performance and economic growth.

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