Incentive Executive Compensation Management System: A Literature Review

Abstract

Senior executives control the operation of the enterprise. Whether the executive compensation management is reasonable and whether it can meet the needs of executives will directly affect the operation efficiency and management efficiency of the whole enterprise. In modern enterprises, the separation of ownership and management is a major feature, and the emergence of agency issues is inevitable, mainly due to adverse selection and moral hazard under the background of information asymmetry. Determining executive compensation by evaluating corporate performance, on the one hand, can mobilize the enthusiasm of executives; on the other hand, it can effectively reduce the agency cost caused by information asymmetry. Based on the principal-agent theory, this paper firstly discusses the agency problem caused by the information asymmetry between shareholders and executives, and then points out that executive compensation, as an incentive means, can effectively alleviate the agency conflict. Previous studies have shown that there is a positive correlation between executive compensation and corporate performance. Then, this paper summarizes the research on the compensation dispersion and compensation stickiness in executive compensation management, so as to put forward some considerations and suggestions for the design of executive compensation management system. Finally, it makes a summary and puts forward the prospect of future research on the shortcomings of existing studies.