Pay Gap Of Top Management Team And Corporate Performance

Top management team's pay has been subjected to intensive theoretical and empirical investigation since the 80's of last century. But existing studies seldom focused on the pay gap in the top management team, and none of them considered the endogenetic relationship between top management team's pay gap and performance. Based on the background of China, this paper analyses the factors of top management team's pay gap and the pay gap's effect on performance after controlling the endogenetic relationship between top management team's pay gap and performance.This paper first analyses the factors of top management team's pay gap. The results show that performance, number of the contestants of CEO position, CEO power, proportion of independent directors and diversification strategies have positive relation with the pay gap, but the pay gap will be small when the controller is the government or when the company is inland. This paper then analyses the pay gap's effect on performance. The results show that the effect of pay gap to performance is curve. This means that when the pay gap is small, extending the gap will bring better performance, and at this time the tournament theory is in dominant. But when the gap has reached certain level, raising pay gap will bring unfair feelings and then worse performance, and at this time the behavioral theory is in dominant. At the end, this paper analysis the pay gap's effect on performance in different circumstances and find that in different circumstances the pay gap has different effect on performance. This shows that blindly extending or reducing pay gay wouldn't raise performance all the time and circumstances should be considered.