Research Handbooks in Corporate Law and Governance series
Edited by Randall S. Thomas and Jennifer G. Hill
Michael Firth, Tak Yan Leung and Oliver M. Rui 1 INTRODUCTION This Handbook analyzes various facets of top management pay and provides an extensive review of the latest research in the area of executive compensation. However, most of the evidence we have on executive pay practices is from the developed economies, most notably the U.S. economy. The purpose of this chapter is to describe top executive pay in the world’s largest transitional economy, the People’s Republic of China. In doing so, we provide some empirical evidence on the levels of pay, the role of corporate governance in setting executive pay, and other determinants of compensation. China’s unique approach to economic reform and corporate restructuring means that research findings on executive pay in developed countries cannot be automatically imputed to firms in China. We compare and contrast top executive pay in China with management compensation in the U.S. and other developed countries. We begin our chapter with a brief review of China’s economic reforms and its recent economic performance. This section discusses how the corporate sector has evolved and describes the regulatory environment. Then we discuss how compensation is set in China and reference the relevant legal and disclosure requirements that pertain to top management pay. We then present some detailed statistics on the levels of executive pay in listed companies and show how pay has changed over time. We analyze the determinants of compensation and calculate pay–performance sensitivities and elasticities. These analyses are compared with findings from other countries....
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