Abstract: From the perspective of future performance, taking the listed firms in China in 2009-2015 as samples, this paper tests the effects of managerial power on the effectiveness of compensation contract based on pay-for-performance elasticity. The results show that managerial power raises pay-for-performance elasticity and lowers payment irrelevant to performance, while the final effect of managerial power is to raise management compensation; if future results seem better managerial power will enhance the effects on compensation contract, which means that managerial power′s effects on compensation contract are for self-interest and compensation justification. Testing in sub-samples, this paper finds that local state-owned firms show higher such self-interested behavior than private firms, while there is no related evidence in central state-owned firms. The above understanding of the factors affecting the effectiveness of the remuneration contract, has implication for enterprises, especially state-owned enterprises to develop more reasonable and effective incentive contract incentive.

Key words: managerial power, future performance, justifying, effectiveness of compensation contract