Can the Chinese Two-Tier-Board system Control the Board Chair Pay?

Abstract

Monitoring function of the Chinese two-tier-board system is expected to affect firms' executive compensation in two ways: (i) improve firm performance which is considered as a partial basis of executive compensation (ii) monitor executives' behaviors to avoid over-pay. This article investigates if corporate governance mechanism indeed benefits in these two ways from major characteristics of supervisory boards, one of the two monitoring organs in Chinese publicly listed companies. We find that supervisory board size is negatively related to the board chair pay, presumably because the monitoring effects of the size of supervisory board on board chair's behaviors dominate those on firm performance. We also find a high level of board chair pay-supervisory board sensitivity in the Chinese publicly listed companies.

JEL Classifications: G34, G39

Keywords: Board chair pay; Monitoring; Corporate governance