The Study Of The Effect Of Compensation Gap On Corporate Performance

In China, with the continuous deepening of economic reform, the level of compensation gap is widening within the enterprises. The soaring compensation numbers and over a hundred times of compensation gap makes two aspects of compensation design become the focus of the public and academic:compensation level and compensation structure. But the academic researches about economic consequences of enterprise internal compensation gap are not consistent, and thus forming the opposite tournament theory and behavioral theory. The tournament theory agrees that the compensation gap can motivate the executives, reduce the agency problem between shareholders and managers in a certain extent, and then improve the corporate performance. While the behavior theory is the opposite, it supports that compensation gap will damage the fair of compensation distribution in a company, so the enthusiasm of the staff and the cohesion of a corporate will be damaged, finally, the corporate performance will be reduced. In reality, these two points are both supported by corresponding empirical studies. So, what kind of impact the compensation gap between executives and employees will produce on the corporate performance on earth?Therefore, this paper studies the problem of compensation gap between executives and ordinary employees in Chinese listed firms.In order to analyze what influence the compensation gaps which produced by different factors will act on corporate performance, this paper will research the factors that influence the compensation gap and the corporate performance that are influenced by compensation gap within the listed company.This study mainly includes two purposes. The first, analyzing the influences that managerial ability and managerial power act on compensation gap. The second, analyzing the influences that the two kinds of compensation gap act on the corporate performance.The main contents of this paper are arranged as the following: The first chapter is introduction. This part includes research background, significance and main idea of this paper, the framework of main contents is introduced too.The second chapter is literature review. This chapter reviews two aspects of literature:the relevant literatures that discuss the influence factors of compensation and the relevant literatures that based on tournament theory and behavior theory to discuss incentive effects of compensation gap. And finally, this chapter will review and summarize the previous related researches.The third chapter is the theoretical analysis. Based on tournament theory and behavior theory, this chapter mainly talks about the incentive effect from the compensation gap which caused by managerial ability and managerial power. Further more, this part will introduce theoretical analysis on the incentive effect caused by the two compensation gaps.The fourth chapter is the research design. This chapter mainly contains research hypothesis, the sample and data sources, the research model and variables.The fifth chapter is the empirical analysis. This chapter mainly uses the empirical research methods to analyze. First of all, this chapter will depend on two aspects to analyze the reasons why company internal compensation gap appears, namely, managerial ability and managerial power, so that we can understanding the two enterprise internal compensation gap. Then the next step, the author will test the impact which influenced by the two compensation gaps from accounting performance perspective and market performance perspective separately.The sixth chapter is the conclusion, suggestions and limitations. This chapter summarizes the empirical findings and conclusions, and puts forward relevant policy suggestions.The major contribution of this paper includes:First, this paper analyses the problem of compensation gap between executives and employees within the enterprise, and what’s more, the influence factors and incentive effects caused by the compensation gap are both discussed, these studies can provide empirical evidence for the research on enterprise internal compensation gap problems.Second, from the points of managerial ability and managerial power, this paper studies the influences that will be produced by the executive compensation, the employee compensation and the compensation gap. The results show that, managerial ability and power have significant effect on all of the three aspects: the executive compensation, the employee compensation and the compensation gap.Third, this paper classifies the compensation gap into two types:one is caused by managerial ability and the other is caused by managerial power. According to the two types of compensation gaps, this paper analyses the corporate performance significantly, and finds out that the incentive effects influenced by the two compensation gaps are definitely the opposite. These findings contribute beneficial exploration to the study of the incentive effect caused by compensation gap.The main limitations of this paper include:First, the measure of managerial ability and power needs further improvement. Due to the impact of data source limitations, the managerial ability and power are just measured by some indirect indicators in this paper, these indirect indicators will affect the explanation of managerial ability and power. Thus further analysis and improvement are necessary.Second, the impact of on-the-job consumption and equity incentive are not considered. When analyzing the incentive effect of salary gap, this paper mainly aims at the analysis of monetary compensation gap between executives and employees, on-the-job consumption and equity incentive are not considered, therefore in the future, we can strengthen the research of on-the-job consumption and equity incentive.