Cidnese Executive Compensation - Do Political Connections Matter?

Abstract

The purpose of this paper is to investigate the impact of varying ownership structure and corporate governance mechanisms on the executive pay levels in Chinese firms. Furthermore, the pay performance linkage of the Chinese executives' compensation is explored in relation to different ownership structures and corporate governance mechanisms present in the Chinese firms. The impact of different ownership variables and corporate governance variables on the executive compensation packages is investigated using several statistical regressions. The paper explores if and how a large concentrated ownership either government, i11Stitutional, foreign or private can affect the executive compensation packages and if the executive compensation is linked to his/her performance in Chinese firms. · The paper provides evidence that in firms with high levels of government or institutional ownership, the pay-performance sensitivities are weak: executive compensation tend to be high without being justified by firm performance. However, in firms with relatively high levels of foreign or private ownership, the pay-performance sensitivity is stronger and executives are compensated for better firm performance. Also, the paper provides evidence that Jinn’s with higher numbers of independent board of director members had better control on their executive compensation mechanisms.