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We study asymmetric performance benchmarking in Chinese executive compensation contracts between 2000 and 2010. We predict that while relative performance evaluation criteria are important in executive pay contracts, managerial power and influence will result in a decoupling between pay and performance. We predict that Chinese managers are rewarded for superior performance but not penalized for inferior performance. We test this asymmetric pay-for-performance hypothesis using three performance benchmarks: whether firm performance is positive/negative, above/below industry average, and above/below regional average. We find the sensitivity between executive compensation and firm accounting performance is asymmetric. It is significantly stronger when firm accounting performance is positive or firm performance exceeds industry or regional median benchmarks compared to cases when firm accounting performance is negative or is below industry or regional median benchmarks. We find little evidence that ownership structure and internal governance mechanisms moderate the asymmetric pay-for-performance relationship. revisited some of the themes that have been extensively studied in the US context in terms of the form of top executive pay, the extent to which pay is related to size versus firm performance, and the influence of corporate governance and ownership structure on top executive pay arrangements.Our study is significant and unique in a number of respects. We add to existing research by investigating the use of peer performance benchmarks, the so-called RPE, in executive compensation of Chinese listed firms. Importantly, we explore the existence of asymmetric benchmarking in Chinese executive compensation. Comparing the performance of the focal firm to industry, to region as well as own absolute performance, we explore whether Chinese executives receive a larger increase in compensation when the firm's performance is above benchmarks and a significantly smaller decrease in compensation when the firm's performance falls below benchmarks. In short, are Chinese executives rewarded for successful firm performance, but not penalized for poor performance?The importance of using RPE in executive compensation contracts is grounded in agency theory (Holmstrom 1979;Jensen and Meckling 1976). Based on the premise that peer performance captures common exogenous risks or shocks, using relative performance in compensation contracts to assess agent's actions provides the principal with more informative performance measures. By insulating managers from these common risks or shocks, RPE should result in more efficiency and risk-sharing benefits in incentive contracting (Diamond and Verrechia 1982;Holmstrom 1982;Holmstrom and Milgrom 1987).Despite RPE's theoretical appeal, prior empirical research using US data offers mixed evidence that firms actually use RPE in executive compensation contracts (Aggarwal and Samwick 1999;Antle and Smith 1986;Bertrand and Mullainathan 2001;Garvey and Milbourn 2003;Gibbons and Murphy 1990). The evidence...

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