Abstract: Using the sample of China's Shanghai and Shenzhen listed companies from the year 2006 to 2014, this paper investigated in the impact of different directions Earnings management have on executive pay-performance sensitivity, and to explore internal control's governance effects towards this phenomenon. We found that earnings management will reduce pay-performance sensitivity, and regression results turned out to be different according to the directions of earnings management. In detail, positive earnings management has a positive impact on this sensitivity while negative earnings management has a negative impact. Internal control can reduce this impact, but the extinct to which is far from ideal situation. This study shows in the case of pay-for-performance, the existence of managerial power may induce earnings management so as to affect managers' compensation.It proves internal control has achieved many good results, and its effect can be further enhanced.

Key words: management rights, earnings management heterogeneity, internal control, compensation-firm performance sensitivity