Managerial compensation structure and firm performance in Chinese PLCs

In this article, I examine whether and to what extent intra-firm compensation structure affects managerial incentives and firm performance. Using an unbalanced panel consisting of a total of 43 626 executives in 1362 publicly listed corporations in China during 1999-2007, I find that pay rewards increase as executives move up the corporate hierarchy and that the largest pay gap is between first-and second-tier executives. Pay dispersion is positively related to the number of tournament participants, level of risk in the business environment and firm performance. Moreover, state ownership and corporate governance play some role in determining managerial pay dispersion and firm performance. The empirical results are consistent with tournament theory and against equity, relative deprivation and sabotage theories of managerial compensation. Asian Business & Management (2012) 11, 171-193. doi: 10.1057/abm.2011.31; published online 11 January 2012