Social Comparisons:Pay Dispersion In Top Management Team And Firm Performance

The functional effectiveness of top management team, which as the main decision-makers and promoters of business strategies, will have an important impact on the operational efficiency of enterprises. The design of pay dispersion among top management as one part of incentive mechanism, will be a very important decision made by board of directors, especially the compensation committee, about executive incentive and corporate governance.Since China’s reform and opening up, the executive pay dispersion issue has been paid great attention, the contribution to firm performance made by tremendous pay dispersion caused by the high salary of CEO caused question and complain from ordinary people, the coverage of media also lead the government to care about executives " astronomical salaries", especially executive compensation in state-owned enterprises. In the academic circle, many researchers also extensively discuss the relationship between TMT pay dispersion and firm performance. Researches on the relationship between TMT pay dispersion and firm performance usually set up research models based on either single tournament theory or the relative theory, such as the behavior theory, the social comparison theory, and the conclusions are different, or even opposite. Therefore, in this study, the first question to be answered is whether or not larger pay dispersion of top management team will help improve the firm performance. At the same time, for the limitations of most of the previous researches, which discuss the overall pay dispersion of top management team after mixing CEO and the other non-CEO executives together, this paper will discuss from two dimensions according to the theory applicability, testing the relationship between the vertical pay dispersion and the horizontal pay dispersion with firm performance, respectively based on the tournament theory and social comparison theory and corporate performance.In the internal of TMT, the working attitudes and behaviors of CEO and TMTs (top management team members, the other non-CEO executives) are affected by the pay dispersion and the social comparison mechanism. According to the connotation of social comparison theory, TMT’s social comparisons will not be limited to the internal comparisons, especially when they feel unfair internally. TMT are more inclined to seek psychological balance or excitation by external social comparisons. Only the behaviors of top management team members are deeply embedded in the social context, can we better understand and make a reasonable explanation. Therefore, this study creatively include organizational external comparison process based on the above "pay dispersion-firm performance" research, and examine the moderating role of external compensation competitiveness (pay dispersion from external comparison) on the relationship between TMT pay dispersion and firm performance.At present, researches on the influence factors of pay dispersion are relatively abundant, but previous studies rarely classified TMT pay dispersion during exploring the influence factors of TMT pay dispersion, so these influence factors often refers to the factors of vertical pay dispersion, for example, pay dispersion coefficient of all members of top management team, pay dispersion among the top three (or five) members. During to the classification of the vertical and horizontal pay dispersion, this paper will explore the influence factors of the horizontal pay dispersion of TMT. After controlling the variables of the independence of the board, TMTs scale, CEO concurrently or not, this research discusses the variables of TMTs equity dispersion, TMTs tenure dispersion, the average tenure of TMTs, TMTs participation of the Board based on social comparison theory, in order to improve the relevant research on top management team in China, enrich relevant research results about executive incentives.This study collects original data on TMT characteristics and firm performance from RESSET database. Then cull, analyze and sort the data according to the research needs, finally examine the empirical study inspection using the 2011 annual samples data of 204 listed corporations in China. We get correlation analysis and multiple regression analysis using SPSS19.0. The results are as follows:(1) There is a significant positive relationship between vertical pay dispersion and firm performance; CEO compensation competitiveness exist positive moderating effect on the positive relationship between vertical pay dispersion and corporate performance;(2) There is a negative relationship between horizontal pay dispersion and firm performance, but not obvious in statistics; TMTs compensation competitiveness exist negative moderating effect on the negative relationship between horizontal pay dispersion and firm performance.(3) There is a positive relationship between TMTs tenure dispersion and the horizontal pay dispersion in TMTs; and negative relationship between average tenure of TMTs and the horizontal pay dispersion in TMTs; there is an inverted U-shaped relationship between TMTs participation of the Board and the horizontal pay dispersion.The research provides reference on determining compensation structure, combining internal and external pay dispersion (the external compensation competitiveness), in order to maintain the excitation energy and improve corporate performance. The research also provides theoretical support and managerial implications for determining the appropriate the horizontal pay dispersion according to the TMT characteristics and social comparison mechanism.