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Compensation negotiation and corporate governance: the evidence from China

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  • Xinjun Lyu
  • Christopher Decker
  • Jinlan Ni

Abstract

This paper examines CEO pay dispersion for the listed companies in China. We apply a two-tier stochastic frontier model to the CEO compensation framework where asymmetric information generates a surplus between the minimum wage that CEOs accept and the maximum payment that firms offer. This surplus leads to CEO pay dispersion coming from the negotiation power between the CEO and the firm. We generate the surplus extracted by each CEO-firm pair and analyze how corporate governance affects them. An empirical analysis finds that: (1) On average, CEOs are paid 23.26% more than the benchmark; (2) additionally, we examine the bargaining power in state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). We find that CEOs in SOEs have less bargaining power due to compensation regulations. We then examine compensation for new CEOs hired externally and find that CEOs hired externally have less bargaining power on average; and (3) corporate governance has a significant effect on the salary bargaining power of each agent. More specifically, the CEO-Chairman dummy has a significant positive effect on the bargaining power of firms and CEOs, but the latter is larger. Board size has a negative effect on both. Independent directors help improve the bargaining power of the firms and board meeting times help enhance the bargaining power of the CEOs. Equity concentration has a significant negative effect on both sides.

Suggested Citation

  • Xinjun Lyu & Christopher Decker & Jinlan Ni, 2018. "Compensation negotiation and corporate governance: the evidence from China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 16(2), pages 193-213, April.
    • Handle: RePEc:taf:jocebs:v:16:y:2018:i:2:p:193-213
    DOI: 10.1080/14765284.2018.1445081
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    Cited by:

    1. Clement Olalekan Olaniyi & Olaolu Richard Olayeni, 2020. "A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 250-277, December.

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