Empirical Research On Pay Gap Within Enterprise And Firm Performance Of Listed Company In China

As an important mean to motivate employees, pay plays an irreplaceable role in the company. Pay gap has been subjected to intensive theoretical and empirical investigation since the 80's of last century. But existing studies seldom focused on the pay gap within enterprise, and few of them considered the two meanings contained in the pay gap within enterprise. Pay gap within enterprise has two meanings, including executive pay gap within the Top Management Team and the pay gap between executive and employees. Based on the A-share listed companies in China in 2006-2008 as samples, this paper empirically analyses the relationship between the pay gap within enterprise and firm performance.This paper describes two main theories about pay gap:Tournament Theory and Behavior Theory. Tournament Theory takes executives as competitors in a tournament, and the winner will receive the entire bonuses. Therefore Tournament Theory advocates a large pay gap. On the contrary, from the perspective of social justice and teamwork spirits, Behavior Theory advocates that the pay gap should be relatively narrow in order to effectively promote the cooperation.According to the meaning of the pay gap within enterprise, using the two branches, pay gap within the executive team and the pay gap between executive and employees, this paper separately analyses the impact on firm performance by this two meanings of pay gap. The result shows that both the pay gap has a positive relationship with the firm performance. It indicates that a large pay gap can promote the firm performance, and it supports the points that the Tournament Theory is suitable for the listed company in China. This paper also examines the reaction of firm performance and the pay gap. The result shows that the better performance the previous year, the greater pay gap this year. It indicates that firm performance can be considered to be a key component when making a pay system.