Performance Regulation, Efficiency Salary and Compensation Incentive for Executives of State-owned Enterprises

Abstract

The relationship between salary and performance is a controversial and inevitable problem in the study of executives’ compensation incentive of state-owned enterprises. A compensation incentive framework with rated performance is designed in this paper to discuss the optimal compensation incentive decisions for executives of state-owned enterprises, based on a two-stage game. Study found that high salary could motivate the executives to work hard, and the effect of compensation incentive would be reduced when there are uncertain factors impact executives’ performance; if executives’ performance could be measured effectively, increasing the rated performance standard is more conducive to motivate executives to work hard than high compensation. Finally, some suggestions are presented to improve the effect of compensation incentive for executives of state-owned enterprises in the matters of industry particularity, performance appraisal standard and the relationship between government and enterprise.