Sometimes conflict of interests arises between the company’s shareholders and the management and if the allocation of incentives to management is appropriate, most of the conflicts can be solved. Incentives are effective only if they are given on the basis of best evaluation. Organizations cannot give incentives to everyone and it should be given on the basis of some criteria which can be measured and evaluated easily. We need to identify some of the measures which can identify the contribution of the manager in the financial growth of the organization (Firth, 2006). Compensation of managers and its determinants is one of the most discussed topics of research and results of this research have shown a tremendous growth in the countries like USA and also in some of the developing countries. There are very few researches happened on China and on this topic but in China we get some very interesting results which show that corporatization and privatization has played a major role in increasing the culture of incentives in the country (Xu & Wang, 1997). All the state owned firms did not believe in the concept of giving incentives to employees on the basis of their performance. But private organizations focus more on the growth and the driver of that growth is nothing but huge incentives to the managers and all the employees of the organization.
Ownership structure plays an important role in deciding the compensation or incentives of the top employees and in this study I will also try to find out the impact of ownership structure on the incentives of the Chinese listed firms. We have seen that because of some historical reasons the ownerships structure of all the listed Chinese organizations is different from their counterparts in other countries. There are three types of share in China’s organizations which are state shares, legal entity shares and tradable common shares. Local and central government hold these state shares and state owned enterprises hold legal entity shares. Individuals and private organizations can have tradable common shares and these shares are traded in either of shanghai or Shenzhen stock exchange.