agency theory

All that we know about the CEO labour market in China comes from studies of public listed companies and state-owned enterprises (SOEs). This paper is the first to examine the operation of the CEO labour market across all sectors of the Chinese economy. We do so using World Bank enterprise data for the first part of the 21st Century. Incentive schemes are commonplace throughout the economy and include contracts linking CEO pay directly to firm performance, annual bonus schemes, the posting of performance bonds, and holding company stock.

Despite their theoretical value in tackling principal-agent problems at low cost to firms there is almost no empirical literature on the prevalence and correlates of performance bonds posted by corporate executives. Using data for China we examine their incidence and test propositions from principal-agent theory regarding their correlates. Around one tenth of corporations deploy performance bonds. They are sizeable relative to CEO cash compensation.