Dissertation > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market

Study on Executive Compensation Incentive System in Chinese Listed Companies on the Basis of Enterprise Value

Author ZhaoShuXiang
Tutor YuanJieQiu
School Ocean University of China
Course Business management
Keywords enterprise value compensation incentive executives EVA KPI
CLC F832.51
Type Master's thesis
Year 2011
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The company executive compensation has been in the spotlight under the circumstance of the poor economic environment and intensified competitive situation since the global financial crisis breaked out in 2008. The debate on the incentive system of the executive compensation centers on whether it can test the ability and efforts of executives effectively in the market environment then to guarantee enterprise value maximization. In fact, only if executives can get effective incentive and enough compensation, they will exert themselves to create business value, which can promote the development of macroeconomics. The academic theory research on the relationship between performance and compensation has always lasted for many years. Chinese listed companies seem to have gradually established a compensation system based on performance. However, in reality, the annual salary of executives is varied. The executives’compensation growth rate in Chinese listed companies is higher than the growth rate of corporate profits. Even profits growth is down while executives’compensation is up. The defects of executive compensation system which has nothing to do with the performance are extensive and long-lasting. It is rooted in the potential governance structure defects, so executives can exert important influence on the board of directors.It reflects the traces which executives custom compensation themselves and hinders the enterprise value maximization goals. Therefore,how to make top-managers act initiatively so as to reach the objective enterprises is becoming increasingly important.At first, this paper overviews the theory of the enterprise value and executive compensation incentive and discusses the enterprise value, value management, the theoretical basis of enterprise value analysis, value creation, the basic characteristics of enterprise value, the theoretical basis of executive compensation incentive,the form and function analysis of executive compensation incentive.This paper adoptes qualitative analysis and quantitative analysis methods. The main body of this paper is based on qualitative analysis because the theme of this study focuses on executive compensation. A small amount of quantitative analysis methods are adopted to describe the status of executive compensation. Choosing the samples of all the companies listed on SSE and SZSE from 2006 to 2009, this paper analysizes the status of executive compensation and the problems of the annual salary and stock option in practice. Besides this, this paper discusses three incentive system of executive compensation on the basis of enterprise value maximization.EVA is more appropriate to maximize enterprise value than other incentive pay system.Aiming at the problems of executive compensation incentive system in practice, this dissertation provides some policy suggestion on perfecting the executive compensation incentive system pursuing the enterprise value maximization: perfecting the related law and policy system, improving the compensation incentive system, disclosing the compensation deeply, consummating the supervision system of executive compensation, perfecting the election system of executives, building the sound evaluation of executive compensation and strengthening the cultural development of enterprises. In conclusion, first, the executive compensation of listed companies increases fast but the absolute value is still low. Compared with the annual salary of developed countries, the compensation has a disparty. At the same time, there is“zero compensation”in China. Although the phenomenon is not common, it also indicates that there are defects of the structure of the company management. Second, EVA is such an effective way of managing value that it will combine performance evaluation and compensation planning, intergrating other value management methods, compensating for its weakness. If EVA is adopted by facts and appropriate transformation, it will be applied successfully.

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