Independent directors, non-controlling directors, and executive pay-for-performance sensitivity: Evidence from Chinese non-state owned enterprises

We investigate the monitoring effect of different types of board directors on executive pay-for-performance sensitivity in Chinese non-state owned enterprises (non-SOEs). We find that the board representation of non-controlling shareholders has a positive impact on executive pay-for-performance sensitivity, while independent directors have a negative impact on pay-for-performance sensitivity. We further find that the positive effect of non-controlling directors is mediated by the ownership level of non-controlling shareholders, and by the controlling shareholder-manager duality. Our empirical evidence suggests that non-controlling directors have a monitoring effect in Chinese non-SOEs, and independent directors do not. Finally, we document that when non-controlling shareholders have relatively high ownership, non-controlling directors are better able to monitor firms' operations, which in turn leads to better firm performance.