The Impact Of Pay Gap On Corporate Performance

Today's market environment in China is constantly changing,and the business management and management model is also undergoing constant changes and adjustments.At present,the common business model of enterprises is the separation of ownership and management rights,and the entrusted management system is adopted.However,this kind of management system will have great drawbacks.Because agents get more information,they will use their own information advantages to seek benefits for themselves.The optimal contract theory holds that salary incentives are a good way to solve the principal-agent problem.The guiding ideology is to maximize the relationship between executive compensation and company performance,and use high compensation to motivate and mobilize management's enthusiasm and reduce agency cost.Under the continuous effect of this compensation system,the management's salary has been rising,which has seriously increased the internal salary gap.The continuous widening salary gap has attracted the attention and research of scholars,and has proposed the behavior theory and theory of tournaments.Then,under the current political background and economic environment in China,what kind of theory is more relevant to the relationship between the salary gap and the company's performance in China's listed companies?The original intention of setting the salary gap is to improve the company's performance.However,the phenomenon of “high price compensation” and “pay performance upside down” that has been repeatedly exposed has made people question the effectiveness of the compensation gap on the company's performance incentive effect.According to the management power theory,based on the assumptions of rational economic people,the management of the company is fully capable and may use its power to “seek rent” to influence or even manipulate the formulation of its compensation contract.In this case,the operating mechanism of the pay gap envisaged by the tournament theory will be destroyed.Therefore,management theory provides a new perspective for explaining these pay chaos.Based on the above analysis,this paper selects China's 2012-2017 Shanghai-Shenzhen A-share listed company as the research object,based on the internal compensation system and reality of listed companies in China,proposes research hypotheses,and uses multiple regression analysis to analyze the impact of two types of salary gaps on corporate performance.In addition,based on the literature review,this paper uses management as a bridge between shareholders and employees,and divides management power into four power dimensionalities: Chairman and General Manager of the two level-one,board size,executive shareholding ratio and independent director ratio.In-depth analysis of the role of each power dimension in the relationship between the two types of pay gaps and corporate performance.Through research,it is found that:(1)The relationship between the two types of salary gaps and company performance is more in line with the tournament theory,that is,the salary gap is positively related to company performance.(2)In general,management power has a significant impact on the relationship between salary gap and company performance,but different power dimensions have different effects and degree of influence on this relationship.Specifically,CEO duality and the larger board of directors will weaken the positive incentive effect of the salary gap on the company performance;the shareholding ratio of the executives has no obvious influence on this positive relationship;the higher proportion of independent directors,the positive relationship is more pronounced.Based on the above conclusions,this paper proposes the following management inspirations based on practical issues:(1)Using scientific methods to determine the pay gap and maximize its incentive effect.(2)Improve the openness and transparency of the compensation system.(3)Improve the corporate governance structure,optimize the allocation of management power,and avoid excessive concentration of power.(4)Establish a sound external supervision mechanism for the company and effectively supervise the power of the management.