Research and design of incentive mechanism of executive compensation, commercial banks Chinese
|Keywords||Commercial Banks Executive Compensation Incentives Design|
Whether compared to the bank’s internal staff or other industries’executives, compensation of executives in the bank industry is much higher. This problem caused more attention after the international financial crisis in2008. Many firms in foreign countries had to pay high compensation to the executives even if their companies are in deficit. The situation is better in China, because they can still make profit, though many financial institutions also become an object of public denunciation. What we can’t deny is that the compensation for senior managers is truly high in the financial area, it has aroused great concern in the economists and public.After reading lots of papers on incentive mechanism of executives writing by scholars both at home and abroad, this article will compare executives’compensation system and its incentive mechanism of listed commercial banks in China with HSBC holdings and Citigroup, the two biggest world-class financial institutions. Looking from the system, HSBC holdings and Citigroup have a series of institutional provisions in executives’incentives, and they disclose all these information in their annual report, including the total amount of executive compensation and its components. In comparison, the disclosure of listed banks in our country need more standard, most of them only disclose the total number which even lacks continuity. They don’t disclose the component of executives’total salary. Structurally, both HSBC holdings and Citigroup give more long-term incentives than short-term incentives, which is a supplementary, while our banks only use short-term incentives.By analyzing the data, we can tell three characteristics of listed bank executives’ incentives in our countries. First, compared to executives in other industries and ordinary employees in the bank, executives’compensation is too high. Second, compared to world class banks, the bank executives’compensation looks low, which is truly too high. Third, the problem is severe in joint-stock commercial banks than government-owned banks and city commercial banks.Then we use empirical analysis to analyze the factors which have effects on executives’compensation. We get the conclusion that compensation has positive relations with total assets, NPL ratio, earnings per share and MC factor, negative relation with return on equity. Among them, the relevance to total assets and earnings per share are larger. We come to the conclusion that executive compensation of listed banks in our countries is not reasonable. We can use E index (E=N1/COM3X N1/TA) to analyze it and adjust it by CAR and BAR to make it more reasonable. At the same time, we should establish long term incentive mechanism, first introduce it in to the existing mechanism then improve it and make wide use of it in the near future. At last, we should establish a mechanism which have both short term and long term incentives and give priority to long term incentives, while short term incentives as a subsidiary.