External Pay Equity’s Influences On Perks And Its’ Economic Effects

In recent years,news of the listed company executives pay up to ten million yuan were frequently exposed,by contrast,some executives’ annual pay were only more than one hundred thousand yuan.There is a wide pay gap between executives,and external equity issue has become increasingly prominent.Based on the behavioral economics perspective,executives are bounded rational and disgusted with inequity.Results of external pay comparison will affects executives’ psychology perception,thus to their behaviors.In this paper we defined and distinguished the concept of external pay equity based on social comparison theory,and also researched executives external pay equity’s effects on perks based on the measurement method of quantile.The analysis of the external pay equity in this paper enriched the theory basic of incentive contract institutional arrangements in existing literature,at the same time,this article revealed the influence of external pay equity on perks and its’ economic effects,and then provided necessary theoretical reference and empirical evidence to optimize the compensation contracts of China’s listed companies.With pay-performance quantile as the judgment of external pay equity,1287 Shanghai and Shenzhen non-financial industry A-share listed companies’ data during 2011 to 2014 was selected in this paper to test external pay equity’s influence on perks level as well as its’economic effects,we also conducted an in-depth discussion combined with the companies’ownership of property,and founded conclusions as follows:First,perks’ amplification of negative inequity-pay sample group is apparently higher than positive inequity-pay sample group,and this gap in state-owned companies is more apparent.Second,Chinese companies perks has significantly positive effects on corporate performance,the state-owned companies concept of "efficiency view" performance is more obvious.Third,external pay equity has a significant effect on perks’ economics effects.Perks of negative inequity-pay sample group express strong "efficiency view",while positive inequity-pay sample group "agency view".Forth,the negative inequity degree of executives’ pay have a significant negative impact on perks’ optimistic economic effect;while the positive inequity degree of executives’ pay have no significant impact on perks’ economic effects.Fifth,external pay equity’s influences on perks and its’ economic effects exist significant differences in state-owned and non-state-owned companies.Through the empirical examination we found that,companies should fully consider the influences of external equity factors on executives’ psychology perception when making compensation incentive policies.We are not only supposed to avoid executives damage companies benefits because of ego inflation caused by excessive compensation,but also avoid executives choose revenge behaviors because of low payment.