Government Control, Top Management Team’s Pay Dispersion and Firm Performance
54 Pages Posted: 30 Jul 2018 Last revised: 18 Jan 2020
Date Written: January 16, 2020
We examine how government ownership control affects the top management team’s (TMT) pay dispersion and how such TMT pay dispersion affects subsequent firm performance. We test three competing views on the influences of government control, referred to as the agency view, the equity view, and the social-political view. Consistent with both the equity view and social-political view, the TMT pay dispersion is lower for SOEs than for non-SOEs. Consistent with the social-political view, the lower TMT pay dispersion induced by government control reduces firm performance. We also decompose the total TMT pay dispersion into the vertical pay dispersion between the CEO and other TMT members and the horizontal pay dispersion among the non-CEO TMT members. Both the vertical and horizontal TMT pay dispersions are important in explaining our results. Overall, our results suggest that SOEs’ TMT pay dispersion is not designed to maximize shareholder value, supporting the social-political view.
Keywords: top management team; managerial pay dispersion; China; government control; firm performance
JEL Classification: D73, G30, L33
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