Empirical Study on the Relationship between Executive-employee Pay Gap and Firm Performance: the Moderating Role of Technology Intensity

Abstract

This paper adopts sub-sample comparison analysis method, chooses 191 technology-intensive firms and 644 labor-intensive firms in manufacturing industry over 2008-2012 as the sample, examines the moderating effect of technology intensity on the relationship between Executive-employee pay gap (EEPG) and firm performance in Chinese manufacturing industry. The multiple linear regression results do confirm that the relationship between the two is sensitive to technology intensity. Results show EEPG does have a positive effect on firm performance for either technology-intensive or labor-intensive enterprises, but for the former the positive relationship is very weak and tends to focus more on organizational justice theory. Relatively, for the latter, the positive correlation is very significant, much stronger, and more in line with tournament theory. Our finding suggests that technology intensity negatively moderates the relationship between EEPG and firm performance, which can reconcile the extant disagreements on performance consequences of EEPG among scholars to a large degree and provide some guidance for firms of different industries in designing rational EEPG practically too.