6 Reform of Executive Compensation and Incentive System in SOEs
In 2014, the Chinese government imposed a new round of salary restrictions on SOE executives in response to the prominent problem of excessive pay. In addition to the compensation of managers’ human capital, managerial compensation also includes the incentive factor of paying information rent, which is also an embodiment of entrepreneurship. Therefore, the one-size-fits-all salary limit is not the right choice. In evaluating whether the manager’s compensation is reasonable, the benchmark is how much value the manager creates for the company and if the party with the information advantage leads the design and implementation of incentive contracts.
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