| Summary: | Executives are the main decision-makers of the company. The performance of a company and the interests of the shareholders are closely associated with executives to a great extent. Under the background of Chinese economic reform and market-oriented reform of state-owned enterprises, the scholars' researches on executive compensation and firm performance have improved significantly in recent decades.
The paper aims at investigating the relationship between executive compensation and firm performance in Chinese state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). The samples are randomly selected from the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2012 to 2016 in CSMAR and RESSET databases. Based on previous empirical researches, this paper raises three hypotheses and establishes a research model to analyze the collected data in STATA. The results show a positive and significant relationship between CEO pay and financial performance in non-SOEs, while there is an irrelevant correlation in SOEs. The study also concludes that Chinese firms rarely adopt stock option incentives as the approach to stimulate the CEOs. And the incentive plans in state-owned enterprises, including central-controlled enterprises and local-controlled enterprises, has no significant relevance to the performance
of the firms. Therefore, it is suggested that the Chinese executive incentive mechanism needs to be improved and the compensation structure should be adjusted to make use of the incentive effect of executive compensation.
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