Manager Talents, Corporate Governance and Benchmark Effect:The Determination of Executive Compensation in Chinese Listed Firms

摘要

This paper seeks to investigate the determinants shaping the evolution of Chinese executive compensation under the impact of market oriented reforms and global governance convergence during the latest three decades. Based on contract theory and behaviour approach, we propose three hypotheses from the perspective of functioning manager market, manager power and benchmark effect in pay setting process given Chinese transitional institution background. Based on a balanced panel data of 502 listed firms surviving at least ten years until 2006, we find that the increasing executive pay level reflects competitive market demand for manager talents. However, well framed corporate governance mechanisms as restraints to manager power can not fulfil effectively. Moreover, Chinese executives in firms closer to higher benchmark of foreign peers tend to receive generous pay package, this benchmark effect has been magnified by the role of compensation committee in pay setting process.