Executive Compensation, Ownership Structure and Firm Performance in Chinese Financial Corporations

Executive compensation in the U.S. banking industry has been criticized as a root cause of the recent financial crisis. This study examines the relationship between executive compensation, ownership structure, and firm performance for Chinese financial corporations during 2001-2009. The results reveal that executive compensation in Chinese banks follows a relation-based rather than a market-based contract. There is little evidence in support of the pay-for-performance setting for Chinese executive compensation. Ownership concentration has significantly negative impacts while firm size has significantly positive impacts on CEO compensation. Further, the involvement of state ownership tends to limit executive compensation, while the compensation committee is friendly and enhances management compensation. The results suggest that the government or regulation may ensure efficient corporate governance in business activity as a helping hand when corporate governance is weak.