China Accounting and Finance Review

, 16:2

First online:

Open Access This content is freely available online to anyone, anywhere at any time.


  • Kun WangAffiliated withSchool of Economics and Management, Tsinghua University Email author 
  • , Xing XiaoAffiliated withSchool of Economics and Management, Tsinghua University

The Effect of Compensation Committee on CEO Compensation Contracts: Evidence from China


Since 2002, the China Securities Regulatory Commission (CSRC) has required companies listed in China to set up compensation committees. In response to this requirement, this paper examines the relationship between CEO compensation and the establishment and independence of such committees. Our results show that the existence of compensation committees (and their greater independence) can improve both the level of pay and the pay-performance sensitivity of CEO compensation in SOEs, supporting the optimal contracting argument. In contrast, when managerial power is stronger than that of the compensation committee, pay increases but not the pay-performance sensitivity, with the committee’s independence having no significant impact on compensation contracts. These findings are in line with the managerial power argument. Our results indicate that the CSRC’s requirement that listed companies form independent compensation committees is effective under certain conditions.


Compensation Committee CEO Compensation Pay-Performance Sensitivity Corporate Governance