In the current market environment, enterprises are confronted with intense competition and rapidly changing market demands. Executive compensation plays a key role in influencing the development of enterprises. Therefore, studying the influence of executive compensation on enterprise performance holds important theoretical and practical significance. Using the data of Chinese listed firms from 2010 to 2024, this paper studies the relationship between corporate financial performance and different types of executive compensation. The research results show that executive compensation have a significant positive impact on the enterprise’s profitability. The higher the executive incentive level, the higher the ROA of the enterprise. However, in terms of the long-term value of the enterprise, there exists a negative relation between equity-based compensation and Tobin’s Q, whereas cash-based compensation exhibits a positive association. This paper speculates that the differences may be driven by the short-sighted behavior of executives. It provides valuable insights for companies when designing their compensation contracts.
Mengyao Guo (Thu,) studied this question.