Career Concerns and 'Unpaid' Executives

57 Pages Posted: 15 Aug 2016

See all articles by Hui Chen

Hui Chen

University of Zurich

Wei Luo

Peking University - Guanghua School of Management

Naomi S. Soderstrom

University of Melbourne

Multiple version iconThere are 2 versions of this paper

Date Written: July 24, 2016


A significant portion of CEOs in publicly-listed Chinese state-owned enterprises receive zero pay from the companies for which they work. Instead, they are paid directly by their controlling shareholder, which can be the Chinese government or parent firms that are controlled by the Chinese government. We explore how these “unpaid” executives are motivated and whether the outcomes of this unusual incentive mechanism differ from the conventional approach. Consistent with career concerns as their main incentive mechanism, we find that these CEOs have a significantly higher probability of future promotion than other CEOs. This result holds when we look at sub-samples in which individual CEOs switch payment regimes. We also find that compared to their peers with paid CEOs, firms with unpaid CEOs in general have higher return on assets, higher asset turnover, higher asset growth, and engage in less tunneling. To mitigate concerns of that our results are driven by CEO selection and to further investigate the use of implicit incentives, we conduct an event study using the Split Share Structure Reform in 2006. The Reform liberalized the Chinese stock market, thus strengthening the role of the market as an incentive mechanism. This mechanism provides a potential replacement for promotion incentives. Our evidence is generally consistent with a reduction in the strength of promotion incentives following the reform.

Keywords: career concerns, promotion, Chinese SOEs, executive compensation

JEL Classification: G30; J30; M12; M52

Suggested Citation

Chen, Hui and Luo, Wei and Soderstrom, Naomi S., Career Concerns and 'Unpaid' Executives (July 24, 2016). Available at SSRN: or

Hui Chen

University of Zurich ( email )

Plattenstrasse 14
Zurich, CH-8032

Wei Luo

Peking University - Guanghua School of Management ( email )

Room 461 Guanghua Building
Peking University
Beijing, Beijing 100871

Naomi S. Soderstrom (Contact Author)

University of Melbourne ( email )

Melbourne, 3010

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