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On the listed company executive compensation and moral risk prevention

Author: SunYuGuo From: www.yourpaper.net Posted: 2009-10-24 16:02:41 Read:
Abstract: highly paid executives of listed companies to start, a brief analysis of the causes of the moral hazard, and focus from further perfect the system of company law, financial management theory, the risk of moral hazard evaluation system of the listed companies, further improve listed companies cope Employee benefits related to information disclosure system of listed companies to further improve the system of executive equity incentive rigid upper limit established annual salary for executives of listed companies, especially the aspects of the state-owned listed companies and listed companies monopoly industries to illustrate the moral hazard.
Keywords: listed companies; executive pay; moral hazard

In 2008, the impact of the global financial crisis, the rapid spread of the global economic recession, the vast majority of the performance of listed companies have declined, the market value is seriously diminished, small investors suffered heavy losses, and in stark contrast with this, the remuneration of executives of listed companies was staggering.
Because China Ping An chairman Ma Mingzhe its other top executives' pay in 2007 caused widespread concern in the community. Many newspapers and networks have reported: three directors and executives of China Ping pretax salary in 2007 of more than 4000 million, which Ma Mingzhe pre-tax return of 6 6.161 million yuan, equivalent to a daily income of 181,200 yuan, Refresh executives remuneration of the highest in the A-share listed companies. And more difficult to accept as much as the proportion of more than 140 executives of listed companies pay the total net profit of the company in more than 10%, which accounted for over 50% of the company has more than a dozen, and even executives income higher than the company's net profit also phenomenon. Accept the Government's $ 800 trillion bailout of AIG companies in the United States, should have decided the payment of high bonuses, which caused the strong condemnation of the U.S. government and the American public, including President Barack Obama, Federal Reserve Chairman Ben Bernanke.
Can be seen from the above facts, the remuneration of executives of listed companies has seriously eroded the interests of small investors, executives of listed companies through the system to guard against moral hazard, so that the remuneration of executives of listed companies and company operating results and operating capabilities match to avoid the executives of listed companies free to use their power to maximize the pursuit of their own interests, to the detriment of the interests of the listed company and its minority shareholders, to avoid unsound governance structure and regulation in place to shareholders and the general investment the losses caused by the people, has become a government regulatory bodies, shareholders and the majority of investors are very concerned about and solved the problem.
So, what is the risk of moral hazard, because of moral hazard, how to prevent moral hazard?
Moral hazard is not the same as moral turpitude. Moral hazard is the scope of the concept of an economic philosophy Western economists in the 1980s, that "economically inactive people make is not conducive to the actions of others to enhance their own effectiveness." Or when the contract utility maximization party is not completely risk consequences of selfish behavior. In economic activity, the moral hazard problem is quite common. Executives of listed companies for their own interests, in addition to pay themselves high salaries, but also through the purchase of high-end cars, renovated luxury office buildings and many other ways to increase the cost of their own enjoyment, to the detriment of the interests of listed companies and other small shareholders. It can be said, as long as the existence of a market economy, moral hazard is inevitable.
Generation of moral hazard is mainly due to the separation of ownership and management of modern enterprise, the owner does not directly control the production and business activities of the enterprise, and executives of listed companies are in a certain sense, the actual control. Shareholders to provide enterprises with financial resources, but they are in the enterprises, the management of the only operators that a listed company engaged in enterprise management. Modern financial theory that the shareholders of the goal is to maximize shareholder wealth, they require the operator maximum efforts to accomplish this goal, but as the senior management of the listed company, they will be asked to increase remuneration, increased leisure time, increase their own enjoyment of cost, rather than do its utmost to achieve the objectives of the shareholders, or even a deviation from the shareholders of the target, thus forming a moral hazard. Astronomical salaries of executives of listed companies to pay for their own out of the performance of the company is just one of them, is urgently needed in the current situation to solve the problem.
Payroll services provided by employees given various forms of compensation and other related expenses, including wages, bonuses, allowances and subsidies, employee benefits, medical insurance, pension insurance, unemployment insurance, industrial injury insurance and other ; housing accumulation fund; union funds and employee education expenses; non-monetary benefits; compensation for termination of labor relationship; stock options, cash stock appreciation rights and access to workers provide services related expenditures. Executives of listed companies can improve any more than an expense to increase their own compensation, and to increase the extent of the lack of legal restrictions, but only the shareholders' meeting to such behavior is easily implemented, and moral hazard the cost is relatively low. Therefore, we must avoid the moral hazard through a variety of measures, to take practical measures to prevent executives of listed companies through a variety of channels for themselves a raise, damage to the interests of small investors and creditors.

Further improve the system of company law

Executive pay only requires that the remuneration of company directors and supervisors to vote after the general meeting, and there is no mandatory requirement for other aspects. Some of the company's directors voting rights controlled by their own hands to decide by highly paid, causing other shareholders disagree with such a decision, due to the limitation of voting rights can not have an adequate voice. Therefore, to make the necessary changes to company law system is very necessary to expand the scope of participation in the voting rights of shareholders to vote for the company's executive compensation matters, not only to include the non-tradable shareholders, but also including circulation vote of the voting rights of the shareholders on the different types of shareholders given different weights, fully embodies the wishes of the shareholders of tradable shares, in order to strengthen the supervision of executive behavior.

Using the theory of financial management, the establishment of a listed company moral hazard evaluation system

1 Employee benefits payable accounted for the proportion of the company's net profit. If the employee benefits payable net profit attributable to the proportion is too large, that company executives are taking advantage of the corporate decision-making authority to pay themselves high salaries, is encroaching on the interests of the Company and its shareholders. Particularly high proportion of executive pay in the "meet payroll is more fully explained it.
Concerned about the abnormal trading price, and the proportion of abnormal values ??of the market price of Aspects of the purchase and sales of the listed company, its trading price relative to the normal transaction price of similar products on the market if there is a great deviation less bulk purchases and other normal factors, the proportion of abnormal value of the market price is too high may exist the executives use commodity trading for its own profit possible. It can be assumed that this is a moral higher risk companies.
Administrative expenses accounted for the proportion of the full cost, as well as the proportion of the growth rate of net profit growth of administrative expenses. A listed company if the management costs account for a high proportion of the full cost, the management team headed by the listed company executives to pay a higher management costs. If the management costs of the annual growth rate is lower than the net profit of the annual growth rate, the growth of administrative expenses is valuable, otherwise this growth is an increase in the value, indicating that the case did not enhance the performance of the company paid more high management costs, company executives moral hazard high or low ability. Discretionary cost proportion of total operating costs, and composition. Discretionary cost is a cost that can be changed through the decision-making of the company executives. This cost if a higher proportion of independent expenditures and enhance the performance of the company, we think this is a moral hazard high incidence company. For example, the "renovation of fixed assets Fixed assets and details of subjects, and combined with the need for the renovation, the analysis of its behavior is to create a luxurious office environment; limousine through the new" fixed assets " upscale office supplies can analyze whether the shareholders of the effective use of financial resources made available; analyze whether the use of meeting to squander shareholder wealth through "administrative expenses" in the "conference fees, to increase the cost of their own enjoyment.
Cost of binding the proportion of total operating costs, and composition. Binding costs for listed companies in the same industry can learn from the level of cost and market prices of major items constitute a binding cost compared to the existence of the occurrence of Business kickbacks and other unethical behavior in the process of analysis of the cost of binding, whether existence of behavior of malicious emptied shareholder wealth.
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