Executive compensation disparity and corporate operational performance

Abstract

This study uses detailed data from Chinese listed companies spanning 2011 to 2022 to comprehensively analyze the impact of executive compensation disparity (both internal and external) on corporate operational performance. Our findings indicate that increasing internal compensation disparity enhances operational performance by lowering management costs and boosting operational capabilities. External compensation disparity, however, has a dual impact: it raises some management costs but also significantly enhances operational capabilities. Moreover, the effect of compensation disparity on operational performance varies by ownership type. Specifically, greater internal disparity benefits state-owned enterprises mainly through cost reduction, while higher external disparity strongly promotes performance in private enterprises. Additionally, external disparity stimulates corporate innovation, further enhancing performance. Meanwhile, internal disparity contributes to performance improvement by optimizing human capital structure.