Publication Details

Zhu, Y., Tian, G. Gang. & Ma, S. (2009). Executive compensation, board characteristics and firm performance in China: the impact of compensation committee. 22nd Australasian Finance and Banking Conference (pp. 1-48). Sydney, Australia: Social Science Electronic Publishing, Inc.


The independent directors of a board can impact CEO payperformancemore effectively if a compensation committeeprovides information and assist them in designing relevantexecutive pay schemes. On the basis of this idea, we developed andtested the hypotheses that Chinese firms with a compensationcommittee have a closer CEO pay link with performance when alarger proportion of independent directors serves on the board. Wefocused primarily on the effect of a compensation committee onCEO pay-performance relation as a consequence of its help for theboard and found that board independence produces a strongerrelationship between executive compensation and firmperformance in Chinese listed firms. This association is more evidentin those firms which have a compensation committee. Our findingssuggest that the interaction between independent directors on theboard and a compensation committee has important consequencesfor CEO incentive systems as well as corporate governancestructures in China.

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Australasian Finance and Banking Conference