Research On The Relationship Between Executive Compensation Gap,R&D Expenditure And Corporate Performance Of GEM Companies In China

Under the conditions of knowledge-based economy,enterprises must rely on innovation to achieve greater development.Especially for GEM enterprises,by increasing the investment in R&D activities,enterprises can continuously acquire new knowledge and technology.As a result,the irreplaceability of an enterprise’s products and services becomes an important factor for the enterprise to gain a foothold in the market competition.As the decision maker of corporate strategy,the thinking and actions of corporate executives affect both the investment in R&D activities and corporate performance.Since R&D is characterized by a long cycle,high risk and uncertainty,in order to protect their own interests,corporate executives tend to make risk-averse investment decisions,while neglecting innovative and long-term R&D projects.As an important incentive,setting different levels of compensation for different levels of executives is the key to aligning the interests of executives and shareholders and improving the corporate governance structure,as well as influencing the intensity of R&D activities and thus the corporate performance.This paper draws on theoretical research results and practical experience on executive compensation gap,R&D expenditure and corporate performance at home and abroad,and follows the "compensation gap-psychological perceptions-strategic decisions-economic consequences" approach.Based on the research idea of "pay gap-psychological perception-strategic decision-economic consequences",the relevant data of GEM enterprises in China from 2011 to 2021 are selected as research samples.The main findings are:(1)The internal pay gap and external pay gap of executives in GEM enterprises in China are significantly positively and negatively correlated with corporate performance,respectively.That is,the greater the internal pay gap of executives in GEM enterprises in China,the greater the incentive for them to stand for the enterprise to maximize the interests of the enterprise and obtain higher value returns for themselves,which reduces the principal-agent cost to a certain extent.If there is a large positive difference in executive compensation compared with the industry average,executives may become arrogant or even conceited,and then become slack in their work;if there is a large negative difference in executive compensation compared with the industry average,executives’ "sense of unfairness" will be enhanced,and their job satisfaction and motivation will be greatly reduced,which will affect the enterprise performance.;(2)The internal pay gap and external pay gap is significantly negatively and positively correlated with performance stability respectively.That is,a reasonable internal pay gap will make executives of GEM companies in China more loyal to the company,which will lead to more stable corporate performance.Too large a gap in the external compensation of executives will bring an imbalance in the mindset of executives,which will easily lead to abnormal decision-making and thus make the corporate performance more volatile;(3)The internal pay gap and external pay gap is significantly positively and negatively correlated with R&D expenditure,respectively,in GEM companies in China.This is due to the fact that a reasonable internal pay gap will make executives feel satisfied and more willing to make decisions that are beneficial to the long-term development of the company,such as increasing R&D investment from the perspective of the company.When the external pay gap of executives becomes larger,executives’ unbalanced mentality makes them more willing to make conservative decisions to avoid risks rather than increase R&D expenditures.;(4)R&D expenditure plays a mediating role in the influence of the internal and external pay gap between executives on corporate performance and its stability in GEM companies in China;(5)GEM enterprises in China should make the relationship between executive compensation gap,R&D expenditure and corporate performance more harmonious and healthy and more conducive to the improvement of corporate performance,and then to the sustainable development of GEM enterprises in China,by improving the incentive mechanism of executive talent,improving the compensation information disclosure system,strengthening the sustainability of R&D activities and optimizing the performance assessment management system.