An Empirical Research On The Relationship Between Intra-firm Wage Gap And Firm Performance

This paper first collects the panel data of Chinese A-share listed firms between 2005 and 2013, divides intra-firm wage gap into wage gap among executives, and wage gap between executives and ordinary workers, establishes fixed effect models based on Tournament Theory to study the relationship between wage gap and EPS, ROA or Tobin’s Q, which are stand for firm performance.Then, all samples are separately divided into state-owned firms and non-state-owned firms by firm nature, and divided into manufacturing firms and non-manufacturing firms by industry for comparative study. After that, a firm development ability indicator—— sustainable growth rate is used for robustness test. Finally, this paper gives the optimal intra-firm wage gap of different samples.The study results show that:(1) Intra-firm wage gap has a positive correlation with firm performance. Tournament Theory is playing a leading role in Chinese firms at present, therefore, wage gap should be widened to enhance the incentive to employees at all levels to participate in tournament competition.(2) Intra-firm wage gap has an inverse U relation with firm performance. Tournament Theory only has a certain applicability: firm performance first improves and then decreases with the wage gap widening gradually, the turning point corresponds to the optimal wage gap.(3) The optimal wage gap among executives is larger than the optimal wage gap between executives and ordinary workers, showing that entrepreneurial talent should be valued, and incentive to executives should be enhanced to encourage entrepreneurs to play a more critical role in operating and management.(4) The optimal wage gaps are significant difference among firms of different types or firms in different industries.(5) The debt ratio is negative correlative with firm performance, firms should optimize capital structure by reducing liabilities level.