Executive Compensation and Incentive Alignment in Modern Corporations

Abstract

Executive compensation has emerged as a significant corporate governance tool to align the interests of executives with shareholders' goals and maximize corporate performance. The main topic of this study is to consider the link between executive pay and incentive alignment in modern corporations in the Chinese corporate context. In particular, the study explores the impact of monetary compensation, equity-based compensation, long-term incentives and corporate governance quality on incentive alignment and the impact of incentive alignment on firm performance. Based on agency theory and behavioral agency theory, the research takes a quantitative method with structured questionnaire survey, and selects executives, board members, HR managers, corporate governance professionals of 440 listed companies in China as the survey objects. The collected data was analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with the use of SmartPLS software. The results indicate that there is a significant positive correlation between incentive alignment and monetary compensation, equity-based compensation, long-term incentives as well as corporate governance quality. Of these, the quality of corporate governance had the most significant impact on incentive alignment. Moreover, it was observed that there was a positive effect of Incentive Alignment on Firm's Performance, suggesting that effective executive compensation systems are helpful in boosting organizational successes. The study contributes to the literature by using several measures of executive compensation and governance quality in a single framework in the context of an emerging market environment. The results have deeper implications that benefit the policy makers, regulators, corporate boards and compensation committees in enhancing the effectiveness of the governance system and creating a sustainable executive compensation system in Chinese corporations.

Received: 2026-05-06 | Revised: 2026-08-21 | Accepted: 2026-10-16 | Online Available: 2026-10-16

Declarations

Ethics and Guidelines: The study was conducted in accordance with the Declaration of Helsinki. The ethical approval specifically covers the research procedures and data collection activities conducted for this study.

Consent to participate: Written informed consent was obtained from all participants prior to data collection. Consent was obtained using a standardized written form, signed by each participant before participation in the survey.

Consent to publish: The authors have provided consent to publish.

Competing interests: The authors declare no competing interests.

Data availability statement: Data will be made available on reasonable request from the corresponding author.

Funding: This research received no external funding.

Clinical Trial Number: Not Applicable.

Declaration of using generative AI: During the preparation of this work the author(s) used ChatGPT in order to correct the grammatical errors. After using this tool/service, the author(s) reviewed and edited the content as needed and take full responsibility for the content of the published article.

Author Contributions: M.W.: Conceptualization, methodology, writing—original draft preparation, writing—review and editing. All authors have read and agreed to the published version of the manuscript.