Beyond Profits: How Government Ownership Shape the Pay Dispersion of the Top Management Team: Evidence from China

Abstract

In this study, we examined the influence of government ownership on pay disparity within top management teams (TMT) of Chinese State-controlled Enterprises (SOEs) versus Chinese non-SOEs and its impact on firm performance. Consistent with the social-political perspective—which suggests that SOEs prioritize government-favored social and political objectives over maximizing shareholder value-we find that TMT pay dispersion is notably smaller in SOEs, especially in central government-controlled SOEs where top executives have high political advancement prospects. SOEs in cities prioritizing social harmony also have narrower TMT pay gaps. Although local labor markets influence pay dispersion in non-SOEs, this isn't the case for SOEs. We found that reduced TMT pay disparity in SOEs correlates with decreased firm performance, observed across both vertical and horizontal pay differences. Our results challenge conventional managerial compensation theories from market-driven economies.

Keywords: top management team; managerial pay dispersion; government ownership; firm performance; China

JEL Classification: D73, G30, L33