The objective of this study is to provide a more comprehensive understanding of executive compensation plans in China. On one hand, it examines the determinants of compensation practices by supplementing the classical principal-agent theory with tournament theory and managerial power theory. On the other hand, it tests whether the adoption of equity-based compensation delivers better company performance for Chinese listed companies. Using compensation data from Chinese listed companies between 2006 and 2011, it is found that compensation level is strongly aligned with accounting-based performance. In particular, compensation and performance are more aligned at the higher hierarchical level. In addition, the level of compensation significantly rises with hierarchical level. It is also found that companies with the presence of the remuneration committee tend to use performance-based compensation. However, compensation and performance are less aligned when the size of the remuneration committee is smaller, and when the proportion of insiders on the remuneration committee is higher. Finally, it is found that company accounting-based performance is improved one year after adopting equity-based compensation. This study offers the following practical implications for policy makers and other practitioners. First of all, the board of directors and its remuneration committee should take account of market-based performance, as well as equity-based compensation, when designing compensation contracts for executives. In addition, policy makers may follow developed countries in implementing legal compulsion for constructing a remuneration committee through enacting laws. Finally, a clear and strong legal support for the appropriate composition and size of the remuneration committee is needed, in order to prevent the decision-making processes of this committee from being influenced by managerial power.