Executive-Employee Pay Gap and Academic Directors – A Chinese Study

Abstract

This study investigates the impact of professor-directors on the executive-employee pay gap in public Chinese firms. University professors are generally believed to have higher standards of ethical and social responsibility by the public. Consistent with this view, we find there is a negative relationship between the executive-employee pay gap and the presence of professor-directors on board. This result is mainly driven by administrative professor directors. The strong political connections of the administrative professor-directors give them both the additional incentive and power to advocate for an executive-employee pay gap reduction. Empirical evidence seems to suggest that administrative professor-directors are successful in promoting employee pay while curbing executive compensation hikes, resulting a smaller executive-employee pay gap. On the other hand, the presence of non-administrative professor directors is associated with both higher executive compensation and higher employee pay, resulting in little change in the pay gap.

Keywords: Executive-employee pay gap, professor directors, administrative professor-directors

JEL Classification: M40, M48