海外高管薪酬激勵研究 - 基於薪酬差距的視角

Abstract

Since the implementation of China’s reform and opening up policy, the past 40 years have witnessed the booming development of Chinese economy with the Gross Domestic Product (GDP) growing from 149.54 billion dollars in 1978 to 15.54 trillion dollars in 2019. Since the year of 2010, China has surpassed Japan and become the world’s second largest economy. The rapid development of Chinese economy has motivated an expansion of foreign direct investment (FDI) scale in recent years. According to the statistics from Chinese Ministry of Commerce, by the end of 2018, over 27,000 domestic investors established 43,000 enterprises through foreign direct investments in 188 countries (regions), accounting for more than 80% of total countries (regions) around the world. As the main domestic entities of foreign direct investments, nearly half of Chinese listed companies set up subsidiaries overseas. The proportion of oversea managers in the top management team also increases gradually. How to supervise oversea managers effectively? Specifically speaking, how to encourage them to make decisions according to the principle of maximizing shareholder values when confronted with different business situations from China? It is an important question remained to be answered.

When designing the compensation incentive plans, the company should take the position risk caused by uncontrolled factors into account (Fee and Hadlock, 2004), that is, to provide a higher salary for positions with higher risks. According to the institutional theory, stakeholders sign contracts to reduce transaction costs while the institutional factors can exert significant impacts on transaction costs (Coase, 1937; North, 1990). Any corporate governance mechanism is an adaptive arrangement made by decision makers in response to a specific institutional environment (Bertrand and Schoar, 2003; Amit et al, 2015). Compared with domestic managers who only take positions in top management team of listed companies, oversea managers who also take positions in oversea subsidiaries are confronted with higher position complexity as well as higher environment uncertainty. As a result, oversea managers demand a higher salary.

In terms of the determining factors of compensation gap, company characteristics, individual features and external environment factors may all affect the salary discrepancy between oversea and domestic managers. When it refers to company characteristics, take firm size as an example. Larger the firm size, higher complexity of business activities and greater requirements for managerial skills. Higher salary should be paid to over-average-quality managers. When it refers to individual features, the Upper Echelon Theory supports that demographic characteristics and historical experiences form the basis of people’s cognitive framework, which affect their perceptions and decision-making process, thus to exert real economic consequences (Hambrick and Mason, 1984; Ding et al., 2011). Compared with domestic managers, more advantages in age and professional experiences, higher compensation premiums paid to oversea managers. When it refers to external environment factors, more developed the local economy is, higher living standards and more investment opportunities, higher compensation premiums are paid to oversea managers.

In terms of corporate governance effects of compensation gap, the tournament theory treats executive managers as participants in tournament competitions, during which the promotion probabilities and managers’ compensation levels depend on their relative performance rather than their absolute performance (Lazear and Rosen, 1981). As the compensation gap widens, managers will be motivated to work hard to achieve higher compensation levels. Under such circumstance, moral hazard behaviors and agency costs will be reduced. Mangers are more likely to make decisions according to the rule of maximizing shareholder values (Main et al., 1993; Eriksson et al., 1999). Therefore, more compensation premiums paid to oversea managers, more positive economic consequences in corporate governance. The advantages arising from the tournament incentive effects may outweigh the disadvantages arising from the unfairness brought by the compensation gap.

Based on the sample of Chinese listed companies with oversea managers from 2005 to 2016, this paper studies the compensation gap between domestic and oversea managers. First, the paper investigates whether the compensation levels of oversea managers are higher than that of domestic managers. It proposes hypothesis and finds that compared with domestic managers, the salary paid to oversea managers is much higher. When companies come from regions with higher degree of marketization, when companies come from industries with more competition, and when oversea managers take positions in subsidiaries located in more developed countries, the compensation gap is larger. The findings indicate that companies will take the position risk caused by uncontrolled factors into account when designing their incentive compensation plans.

Second, the paper studies the determining factors of compensation gap between domestic and oversea managers. It proposes hypothesis and finds that company characteristics, individual features and external environment factors all affect the salary discrepancy between oversea and domestic managers. Specifically speaking, higher salaries are paid to oversea manager for firms with larger size, with more cash used to pay management compensations, and with more oversea managers in top management teams. In addition, when oversea managers are older and have richer professional experiences, their salaries are much higher than that of domestic managers.

Last but not least, the paper studies the corporate governance effects of the compensation gap between domestic and oversea managers. It proposes hypothesis and finds that with the compensation gap widens, the quality of corporate governance will be improved: the agency cost is lower, the performance becomes better and the accounting quality turns out to be higher. The findings indicate that the tournament theory rather than the behavior theory provides more compelling explanations for the economic consequences of the compensation gap. Further analysis show that oversea managers are better-educated and have richer professional experiences. What’s more, the positive governance effects are more significant when oversea managers have larger comparable advantages in education and professional experiences, indicating the positive economic consequences can be partially explained by the competency difference between oversea and domestic managers.

The contributions of this study lie in four aspects: first, prior literature mainly focus on the effects of managers’ oversea backgrounds, whether on corporate decision making or on economic consequences (Giannetti et al., 2015；Yuan and Wen, 2018；Wang et al., 2015；Zhu and Lyu, 2019). Few studies explore managers’ taking position in oversea subsidiaries. This study analyzes from the perspective of compensation gap and provides empirical evidence on the incentive plans of oversea managers.

Second, the paper finds that the compensation levels of oversea managers are significantly higher than that of domestic managers, indicating when companies design their compensation incentive plans, they take the position risk caused by uncontrolled factors into account. The findings enrich the compensation theory related to position risks.

Third, the paper finds that the compensation gap between domestic and oversea managers will be affected by company characteristics, individual features and external environment factors. Through comprehensive and systematic analysis, the findings support the basic idea hold by institutional theory that the corporate contracts originate endogenously from the institutional environment, affected by decision makers and restricted by corporate resources.

Fourth, the paper finds that the tournament theory can provide more compelling explanations for the positive economic consequences of salary discrepancy, which enriches the compensation gap theory and provides explicit practical guidance for companies to set salary distances among different types of managers. Further analysis indicate that the positive economic consequences are more significant when oversea managers are better-educated and have richer professional experiences, indicating that it can be partially explained by the competency difference between oversea and domestic managers.

Date of Award	4 Feb 2021
Original language	Chinese (Traditional)
Awarding Institution	City University of Hong Kong
Supervisor	Junbo WANG (Supervisor) & Changjiang LYU (External Supervisor)