The effect of managerial power in executive compensation contracts

Abstract

This paper applies the sample of the Chinese listed companies during 2004 to 2010, and tests the effect of managerial power in executive compensation contracts by analyzing the relationship between managerial power and compensation levels. We find that managerial power not only has a significant positive effect on actual compensation, but also plays an important role in the behavior of getting excess compensation, so the effect of managerial power in China's capital market is confirmed. Further studies showed that corporate ownership has a significant moderating effect on the effect of managerial power. Specifically, the effect of managerial power in executive compensation contracts has different levels of existence both in the state-owned and private enterprises, but State-owned enterprises are more prominent. In the local state-owned enterprises, executives prefer to grab the monetary private benefits using their power, while in the central state-owned enterprises, executives prefer to grab perks and other non-monetary private benefits using their power.