Government Ownership, Top Management Teams’ Pay Dispersion, and Firm Performance
73 Pages Posted: 30 Jul 2018 Last revised: 11 Oct 2021
Date Written: October 7, 2021
We examine the effect of government ownership on top management teams’ (TMTs’) pay dispersion and how such government ownership-driven pay dispersion affects subsequent firm performance. Using data from publicly listed Chinese firms, we show that TMT pay dispersion for SOEs is only two-thirds of that for non-SOEs. Among the SOEs, TMT pay dispersion is lower for central government-controlled SOEs, especially those whose CEOs or chairmen have greater prospects for political promotions. In addition, CEOs of central government-controlled SOEs are more likely to receive political promotions when their firms’ TMT pay dispersion is lower. TMT pay dispersion resulting from government ownership is positively associated with subsequent firm performance. Our results hold for both vertical pay dispersion between the CEO and non-CEO TMT members and horizontal pay dispersion among non-CEO TMT members. Overall, these findings are consistent with the social-political view, which assumes that SOEs pursue broader social and political objectives preferred by the government, and is inconsistent with several economic theories that assume that firms pursue shareholder value maximization.
Keywords: top management team; managerial pay dispersion; China; government control; firm performance
JEL Classification: D73, G30, L33
Suggested Citation: Suggested Citation