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1、The Annual Income of Managers of Chinese Listed Companies in 2001Bingqing Fan 1 Bingqing Fan, born in 1963, Ph. D candidate at Huanzhong University of Science and Technology; General Manager of Shenyin & Wanguo Securities Co., Ltd, Hubei Headquarters；Senior Economics Engineer. Address: No. 277 Qinni
2、an Road, Wuhan, Hubei Province. Zip code: 430015; Tel: 027-83615705;Email: fanbq;Abstract：Managers need incentive. People have alwa ys paid attention to the issue of motivating managers in China. One of the most obvious and important ways is largely based on giving managers salary stimulation to the
3、ir annual income. The paper aims to analyze the relationship between performance and incentive based on the data of the income of the managers of listed companies in 2001. From the quantitative and empirical study the writer points out that there is no statistical relevance between the annual income
4、 of senior managers and the operating index of the companies. The paper then probes into the causes and proposes a number of countermeasures.Key words：managers of listed companies, incentive mechanism, annual income, salary stimulationSalary stimulation is an important material stimulation. The one
5、based on annual income is a typical dominant one. The company services as a very special contract of human resource capital and non-human resource capital in the way that “in the contract there are certain things left unsaid and are to be regulated by incentive mechanism” (Zhou Qiren, 1996). To avoi
6、d moral risks and negative choices by the managers and to reduce the commission cost, it is natural for companies to sign up income and performance contract with managers, especially the senior ones, inducing diligence from them through paying due salary. Listed companies are leaders of Chinese ente
7、rprises and are generally superior to other state-run enterprises in management and achievement. How is the income stimulation of the senior managers of these companies in 2001? How much do they get? What characteristics are there? Is there any significant correlation between the income and the comp
8、anies operation index? The paper intends to answer these questions by empirical study of the income data of the annual income of the managers of listed companies in 2001.I. Annual income of the managers (senior managers) in 2001The managers refer to the senior managers (SM) 2 For the sake of conveni
9、ence, the concepts of senior manager (SM) and manager are used interchangeably in the paper., including directors, supervisors and managing staff. To understand the annual income of these people, we collected the annual reports of 2001 by 1175 listed companies provided by Julin Information until 31,
10、 December, 2001. The actual sample companies amount to 1016 since B-share companies and some A-share companies with incomplete information are not included.The average annual income of SM of listed companies= (salary + bonus + subsidy + benefit)/No. of SM. The share ratio of the biggest shareholder
11、= the No. of shares hold by the biggest shareholder/total shares. The average annual income of SM of all trades = total value of the annual income of SM/13 (13 being the number of trades)Through statistical analysis of the 1016 companies, we find the characteristics of the average annual income of S
12、M as follows:1. There is discrepancy of income in different tradesAs shown in Table 1 and Table 2, the top three high income SM come from finance, insurance, IT and real estate businesses, which are 144,800, 138,100, and 119,200 respectively. The lowest come from agriculture, forestry, pasturing, an
13、d fishing, which is 52,800. The next is manufacturing, 68,100. The interesting thing is that both the highest and the lowest income comes from manufacturing, the average of which is lower than that of the average discretionary income of 6,8803 According to Statistical Report of National Economy and
14、Social Development of 2001 issued by the State Statistical Bureau website. of the Chinese residents, which brings doubt about the authenticity of the report as it is obviously not reasonable.Table 1 Descriptive statistics of the annual income of SM of listed companies in 13 trades (units:10,000 yuan
15、 , money in Chinese ) TradeAverageMedianVarianceMin.Max.SamplesMining4.6284.970.8682.835.6111Mass media10.458.8355.881.8328.1810Power & energy8.335.4958.191.224039Real estate11.926.61129.862.2644.927Construction11.149.1273.42.4134.5718Transportation & warehousing8.896.648.961.4337.545Finance & insur
16、ance14.4813.3538.414.1319.665Agricultural etc5.284.6812.140.9915.2227Wholesale & retail7.756.5131.27130.4986Social service9.887.8390.551.3552.6334IT business13.819.57173.001.9172.9557Manufacturing6.7954.9843.810.6491.55584Others8.767.5430.191.4425.3873Table 2 Correlation coefficient of performance a
17、nd scale of the listed companies (=0.01, n=1016)TradeAve. annual income (y) and dividend per share (x1)( )Ave. annual income (y) and assets dividend (x2)（%）Ave. annual income (y) and total assets (x3)()Mining (11)-0.004-0.2350.187Mass media (10)-0.636-0.8380.136Power & energy (39)0.0480.6380.263Real
18、 estate (27)0.3010.1230.426Construction (18)0.2340.298-0.114Transportation & warehousing (45)0.2390.4130.205Finance & insurance (5)0.7160.8410.632Agricultural etc (27)0.175-0.2370.024Wholesale & retail (86)0.4300.0950.441Social service (34)0.1770.1490.496IT business (57)0.233-0.1270.069Manufacturing
19、 (584)0.0140.0260.049Others (73)0.2110.1390.532From the statistical results of correlation coefficient, we find that:（1）there is positive correlation between the average annual income of SM and the share dividend, net assets income and total assets in finance and insurance companies.（2）there is nega
20、tive correlation between the average annual income of SM and the share dividend, net assets income and total assets in mass media companies.From the variance statistics we find there is dramatic difference in money income earned by SM in certain trades. This is particularly shown in trades like powe
21、r and energy, real estate, social service, IT and manufacturing, but not so obvious in mining. According to the study of standard deviation, the average annual income of SM is 91,470 with SD as 30,150, which also shows that difference exists in different trades.2. The average money income is low and
22、 individual difference is obviousThe average annual income of SM from the sample companies is 78,990, SD is 7,5140 and variance is 56,470 according to Table 1, Table 3, Table 4 and Table5. The top three high income SM come from ST Kelong, Tianda Tiancai, and Yongyou Software, with 915,500, 729,500 a
23、nd 660,700 respectively. The lowest three are Sida High-tech, Ningcheng Laojiao and Dengta Paint, with 6,400, 7,100 and 9,200 respectively. ST Kelong became an immediate focus since the SM income ranks the first but the company reported great loss last year and great controversy followed.Table 3 Des
24、criptive statistic of average annual money income of SM according to trade (n=1016)averagemedianvarianceminmaxrange78,99058,15056,4706,400915,500909,100Table 4 Top 10 salary-earning SM (n=1016, money in Chinese )rankcodecompanyaverage income1000921ST Kelong915,5002000836Tianda Tiancai729,5003600588Y
25、ongyou Software660,7004600007Chian International Trade526,3005000002Shenzhen WankeA449,0006000037Shennan ElectricityA400,0007000787Chuangzhi S&T394,3008600660Fuyao Glass389,8009000948Nantian Information385,00010600548Shenzhen Expressway375,000Table 5 Bottom 10 salary-earning SM (n=1016, money in Chi
26、nese )rankcodecompanyaverage income1000676Sida High-tech6,4002600159Ningcheng Laojiao7,1003000695Dengta Paint9,2004000498Dandong Synthetic9,6005000760Hubei Cheqiao9,7006000915Shanda Huate9,7007600381Baichunlu9,9008600807Jinan Merchandize10,0009600568Qianjiang Pharmaceutics10,20010600137Changjiang Ko
27、nggu10,500Following is the average annual income of SM in figure.Fig.14 Here N=1017 because there is no missing valid for showing the incompleteness of data in calculation program. Histogram and normal curve of the average annual income of SM ( n=1016)From the frequency statistical results we find t
28、hat of all SM studied, 42.1% earn between 6,400 and 50,000, 33.4% earn between 50,200 and 100,000, 13.4% earn between 100,300 and 150,000, 4.8% earn between 150,400 and 200,000 and 6.3% earn between 202,400 and 915,500. (see Fig. 1)3. The annual monetary income of SM is low on a large scale and thos
29、e with high monetary salaries take only a small percentage.The average annual money income of the SM sampled is 78,990. The total income amounts to 850,209,400, which is about 1.34% of the total net profit of all sampled companies which is 63,301,185,0005 according to the paper titled Ending of Annu
30、al Report of 2001 by Listed Companies of Shanghai and Shenzhen Stock Exchange which Shows a New Low of Overall Performance by Wang Lu published 30, April, 2002 on Shanghai Securities Newspaper. The original sentence is, Statistics show the average business income by the 1173 companies is 13.37 milli
31、on, an increase of 37.05% compared to last year. The average net profit is 62.3657 million, an increase of 0.97%. There are 8112 SM, 50.2% of the total, get paid directly from the listed companies. The study of the frequency of paid SM from these companies shows that 1-5 paid SM takes 7.1%, 6-19 pai
32、d SM takes 90.9% and 20-32 paid SM takes 2%. The main reasons are:a. A large number of listed company SM are nominated by the master department. They retain the title of government official and get no pay from the company.b. Some SM get paid by the parent company or group while working for the liste
33、d company.4. The pay structure is single and unreasonableFor most listed companies, the pay structure is salary + bonus + subsidy + benefit. Only a few carry annual salary. By the end of 2001, only 86 companies, 7.57%6 according to the paper by Wu Ming published on 15, July, 2002 on China Securities
34、 Newspaper, titled All Problems Originated in Motivation. of the total, rewarded SM by stock ownership. On the other hand, in America the salary structure is more reasonable in which salary takes 42%, bonus 19% and stock option 28%7 according to the paper by Wei Gang titled Incentives for Senior Man
35、ager and Performance of Listed Comparnies in the third issue of Economics Research Journal, 2000.II. Regression analysis of performance and annual money income of SM1. HypothesesHypothesis 1: There is positive correlation between the annual money income of SM and the performance and scale of the com
36、pany. According to the Agent Theory, share holders normally sign up a pay-performance contract with managers when there is information imbalance between them so as to reduce the agency cost brought by morality issues or negative decision making and maximize their profit. Under the contract, managers
37、 try to raise their income by improving the performance of the company. As the money income is absolute in the total income of SM in China, we hypothesize that there is positive correlation between the annual money income of SM and the performance of the company.Hypothesis 2: Apart from influence fr
38、om the performance, the salary of SM is also restricted by the resources available to them. For two companies which differ in scale, there will be difference in profit owing to their difference in total assets even if they have the same assets profit. Consequently, the performance and pay of the SM
39、in these companies will be different, too. There is positive correlation between the scale of the company and the pay of the SM.Hypothesis 3: Under similar conditions, the brisker the trade, the better performance of the company and the higher the pay of the SM, and vice verse. There is positive cor
40、relation between the business condition and the annual income of the SM.2. Model and variableHere, x1 is the dividend per share; x2 is net assets profit. x1 and x2 are performance variables. X3, the total assets, is the scale variable and y, the average annual income of SM, is the pay variable.For h
41、ypothesis 1 and 2, we construct the following linear models:y=a+bx1+cx2 （1）y=d+fx3 （2）For hypothesis 3, we make a correlation analysis model:Ri=b(xi yi) （3）3. OutcomeThe result of calculation on model (1) isy=7.698+1.715x1-2.0610-4x2 （4）Here, R2=0.0960 Adj-R2=0.009 F=4.692 SE=7.483, and the t of x1
42、is 2.954 and of x2 is -0.074. The value of t is small and R2 is much smaller than 1, so Hypothesis 1 is rejected, i.e., there is no obvious positive correlation between the performance and income of SM.The result of calculation on model (2) isy=7.796+4.31610-7x3 （5）Here R2=0.0810 Adj-R2=0.006 F=6.70
43、1 SE=7.490, and the t value of x3 is 2.589. The t value is small and R2 is much smaller than 1, so Hypothesis 2 is rejected, i.e., there is no obvious positive correlation between the scale of the company and income of SM.The calculation of model (3) is done through the correlation matrix. The resul
44、ts show that there is positive correlation between x1, x2, x3 and y in finance and insurance companies. In wholesale and retail business, real estate, transportation, warehousing, construction, and IT companies, y is related to trade. Therefore, hypothesis (3) is partially acceptable.Next, lets see
45、the correlation coefficient of performance, income and scale (see Table 6).Table 6: Correlation coefficient between performance, scale and income (0.01，n=1016)Dividend per share (x1)Net assets profit (x2)Total assets (x3)Average income(y)0.0960.0250.070Although the correlation coefficient between y
46、and x1, x2, x3 is positive, it is far smaller than 1. Therefore there is no significant correlation between them. To find out reasons, we look into the effectiveness of the stock market and cooperate governance.III. Regression analysis of effectiveness1. The effectiveness analysis of marketThe three basic functions of stock market are to raise fund, fix price and deploy capital. We will give a brief answer about the effectiveness of the stock market from probing into the i
