Internal And External Executive Monetary Compensation Gap And Firm Performance Volatility

In recent years,the executive compensation level of China's A-share listed companies has increased year by year,and the compensation gap within the senior management team has also shown an expanding trend.As an important measure to alleviate the problem of principal-agent,executive compensation incentive has received extensive attention from the academic community and the society.The executive compensation gap,including the compensation gap between different levels of executives within the firm and the compensation gap between executives from different firms in the same industry,is an important part of the executive compensation incentive mechanism.At present,the researches on the incentive effect of executive compensation gap mainly focus on the relationship between internal executive compensation gap and firm performance as well as the relationship between external executive compensation gap and firm performance.The improvement of firm performance always exists with risks.When the executive compensation gap has an impact on the firm performance,it will also have a certain effect on the firm performance volatility.In addition,both of the internal compensation gap and the external compensation gap have an incentive effect on the executives,so the internal compensation gap and the external compensation gap should be considered comprehensively.Therefore,this paper studies the relationship between the internal monetary compensation gap and firm performance volatility as well as the relationship between external monetary compensation gap and firm performance volatility,and also explores the comprehensive impact of internal and external monetary compensation gaps on firm performance volatility.Based on the previous research results and the principal-agent theory,this paper uses the tournament theory,expectancy theory,equity theory and Maslow's hierarchy of needs theory to analyze and put forward relevant hypotheses.This paper selects the private companies of A-share listing in China from 2012 to 2016 as samples.Firstly,using regression analysis,this paper empirically tests the relationship between the internal monetary compensation gap and the firm performance volatility as well as the relationship between external monetary compensation gap and firm performance volatility respectively.Afterwards,the internal compensation gap and the external compensation gap as well as the intersection items are added to the regression model.It is aimed at exploring the moderate effect of the internal monetary compensation gap on the relationship between the firm performance volatility and the external monetary compensation gap,and the moderate effect of the external monetary compensation gap on the relationship between the firm performance volatility and the internal monetary compensation gap.The results show that there are significant positive correlations between the internal monetary compensation gap and the firm performance volatility,and between the external monetary compensation gap and the firm performance volatility.The results also shows that the internal monetary compensation gap has a negative moderate effect on the positive correlation between the firm performance volatility and the external monetary compensation gap,and the external monetary compensation gap has a negative moderate effect on the positive correlation between the firm performance volatility and the internal monetary compensation gap.The innovations and possible contributions of this paper are as follows;First,from the perspective of the company's performance volatility and the comprehensive effect of the internal and external monetary compensation gaps,it enriches the researches of the impact of the internal and external monetary compensation gaps on the company's value.Secondly,the conclusions of the paper provides a reference for the design of the company's compensation incentive mechanism,suggesting that the company should consider the company's performance and the company's performance volatility comprehensively,and should consider the incentive effect of the internal and external monetary compensation gap of the executives comprehensively.