Could Executive Compensation Incentive Enhance the Efficiency of Enterprise Resource Allocation? An Empirical Study from China

Xianan Yin,Hua Ming,Xinzhong Bao,Jing Cui,Daqing Gong

doi:10.1155/2021/7073878

Xianan Yin, Hua Ming + Show 3 more

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https://doi.org/10.1155/2021/7073878

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Abstract

Corporate executives have the decision-making power of resource allocation, and efficient resource allocation is an important measure of high-quality development of enterprises. It is a focal issue whether the compensation incentive can promote the executives to make better use of the enterprise resource allocation. We investigate this question using the data of the Chinese listed companies in 2015–2019 based on Data Envelopment Analysis (DEA) and fixed effect model. The results show the following: (1) both monetary compensation incentive and equity incentive can significantly improve the efficiency of resource allocation, and the former is more significant; (2) there is an inverted U-shaped relationship between perquisite consumption incentive and resource allocation efficiency; (3) the above conclusion is still true in state-owned enterprises; (4) in private enterprises, the effect of equity incentive is more effective, but the effect of perquisite consumption incentive is less significant. The results highlight the relationship between compensation incentive and enterprise resource allocation. Our study is expected to guide the executives to formulate reasonable compensation incentives and improve the efficiency of resource allocation.

Highlights

Resource allocation is decided as one of the important stimulators of development of a country and its impact on economy [1]
We have studied the impact of monetary incentive, stock ownership incentive, and perquisite consumption incentive on the efficiency of corporate resource allocation
We found the following: (1) Both monetary compensation and equity incentive can significantly improve the efficiency of corporate resource allocation, and monetary compensation incentive is better than equity incentive in improving the efficiency of resource allocation, so monetary compensation incentive is the most important incentive method

Summary

Introduction

Resource allocation is decided as one of the important stimulators of development of a country and its impact on economy [1]. E efficient decision-making behavior of enterprise executives commonly depends on their ability and salary incentive. As for the relationship between executive compensation incentive and resource allocation efficiency, previous research mainly focuses on the impact on a single resource, such as R&D investment, and an unanimous conclusion has not been reached. Whether the enterprise executives can effectively implement the enterprise decision-making behavior usually depends on the executives’ ability and the degree of salary incentive. The higher the salary incentive executives get, the higher the job satisfaction they will have, and the more the care they will provide for the correctness and efficiency of enterprise decision-making. The research on the impact of executive incentive on enterprise resource allocation is rare and mainly focuses on the impact of individual resource elements, and the research conclusion has not yet reached a consensus

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Conclusion