Management Review ›› 2021, Vol. 33 ›› Issue (5): 134-141.

• The Wu-li, Shi-li, Ren-li Approach (WSR): An Oriental Systems Methodology • Previous Articles    

Research on the Formation Mechanism of Executive Compensation Stickiness from the Perspective of Compensation Contract——Based on the Interpretation of WSR Methodology

Sun Shimin, Zhang Hannan, Ma Zhiying   

  1. School of Business Administration, Northeastern University, Shenyang 110169
  • Received:2019-05-24 Published:2021-06-03

Abstract: This paper interprets the wuli, shili and renli in the design of executive compensation contract by WSR methodology, divides the executive effort into two types of “profit-making efforts” and “fundamentals efforts” according to wuli and shili and introduces shareholder incentive preference, executive effort preference and executive risk aversion preference to construct the multitask principal-agent model in order to explore the formation mechanism and influencing factors of executive compensation stickiness based on the perspective of compensation contract. The results are as follows: (1) As an important influence factor in the design of executive compensation contract, the greater the contribution degree of fundamental characteristics to company's future income is, the more obvious the executive compensation stickiness is, which proves that compensation stickiness is an important institutional arrangement for shareholders to reward executives in a certain extent. (2) Shareholder incentive preference, executive effort preference and executive risk aversion preference have an important impact on compensation stickiness. The stronger the shareholder short-term incentive preference and the executive risk avoidance degree are, the weaker the executive compensation stickiness is; the relationship of inverted “U” type exists between executive profit effort preference and compensation stickiness.

Key words: compensation stickiness, compensation contract, multitask principal-agent model, WSR methodology