The Impact of CEO Tenure on Employees’ Salary: Evidence from China

Abstract

Using empirical date from Chinese A-share listed firms, this paper studies the impact of CEO tenure on the salary policy of employees. Empirical results suggest that in the early stage of CEO tenure, the CEO tends to increase both the salary and the pay-performance sensitivity of employees to motivate employees, the effect can be more significant for the employees with stronger bargaining power in the labor market. Further analysis finds that the effect of CEO tenure mainly exists in the firms whose CEO is promoted inside of the firms, and the role of the CEO separates from the chairman of the board. In addition, the negative effect of CEO tenure on the pay-performance sensitivity of employees only exists in firms with smaller staff scales. The research of this paper not only enriches the factors that influence employees’ salaries, but also contributes to a more comprehensive understanding of corporate politics.

Keywords: CEO Tenure, Employees' Salaries, Pay-Performance Sensitivity, CEO power