The Effect Of Executive Succession Source On The Relationship Between Executive Compensation Gap And Firm Performance

In a context of the widening gap between the rich and the poor, executives' compensation have raised concerns for pay equity. The scholars try to make efforts to give advice for executives' compensation structure to improve firm performance. But for now, many scholars have failed to form a unified conclusion. So whether the expansion of the executives' pay gap improves the firm performance or leads to a decline on it? Do the property rights have different effects on the relationship between the pay gap and the firm performance? Do the internal and external successors have different reaction to the compensation gap, and thus affecting the firm performance?In order to further discuss the above issues, this paper takes A-share listed companies of China from 2010 to 2014 as the research samples, and takes the internal and external perspectives to study the effect between the compensation gap and firm performance. The results show:(1) the actual situation of China's listed companies are in line with the theory of tournament. The greater the compensation gap is, the better it can motivate executives to improve the firm performance. (2) The internal compensation gap have greater incentive effect on the state-owned enterprises' executives than the non-state-owned ones. Then the external compensation gap have greater incentive effect on the non-state owned enterprises'executives than the state owned ones. (3) The successors from different sources have different reaction to the compensation gap. For the internal successors, the internal compensation gap have better incentive effect on them than the external compensation gap. For the external successors, only the external compensation gap have incentive effect.Finally, this paper gives specific suggestions. From the micro perspective, we should expand the compensation gap appropriately, establish performance-based compensation system, choose diversified incentive compensation items for different successors, choose proper incentive way based on its different property rights. From the macro perspective, the government should regulate the information disclosure of executives'compensation, establish a sound market of managers, reform the compensation of state-owned enterprises, make macro adjustments by tax measures.