Understanding East-West Cultural Differences on Perceived Compensation Fairness Among Executives: From a Neuroscience Perspective.

Fan Yu,Jianfeng Yao,Ying Zhao,Massimiliano Farina Briamonte,Sofia Profita,Yuhan Liu

doi:10.3389/fpsyg.2021.815641

Abstract

Cognitive neuroscience research has found that individuals from different cultures have different neural responses and emotional perceptions. Differences in executives’ perception of external pay gaps in different cultures can affect their work attitudes and behavior. In this study, we explore the direct relationship between executive compensation fairness and executive innovation motivation. We also investigate the moderating effects of Confucian culture and western culture between executive compensation fairness and executive innovation motivation. Data were collected from the Chinese listed firms from 2011 to 2019 and test the relationship using the fixed-effect panel regression models. The results demonstrate that executive compensation fairness positively influences the executive innovation motivation. This effect is more pronounced in Confucian culture regions, while Western culture weakens this effect. The findings of this study confirmed that executive compensation fairness, provide a cross-cultural comparison for compensation research, validate the findings of cultural neuroscience, and provide useful insights into the research of common prosperity. To improve the corporate compensation structure, it is necessary to consider the relative pay equity with firms in the same region and the influence of corporate culture.

Highlights

China’s common prosperity, which proposes a vision toward a more equitable economic and social system, is currently a hot topic across the world
In the context of Western individualistic cultures, many empirical studies have demonstrated that the external pay disparity of corporate executives is positively related to their innovation motivation (Coles et al, 2018; Ma et al, 2019)
Executive compensation fairness values range from −7.43 to 2.46, reflecting a pay gap between local firms with a minimum ratio of 0.001 and a maximum ratio of 11.69 to the ROA gap

Summary

Introduction

China’s common prosperity, which proposes a vision toward a more equitable economic and social system, is currently a hot topic across the world. In order to promote common prosperity, the trend is to reduce the pay disparity between firms and to pursue compensation fairness. It becomes a question of whether this will facilitate or hinder their development. The pay disparity is seen as a tournament incentive (Lazear and Rosen, 1981). Some famous scholars demonstrate that prospective equity studies have argued that equity theory focuses on people’s psychological perceptions of income fairness. The scholars of social preference emphasize people’s pursuit of fairness. These theories are probably sound, and maybe they ignored the heterogeneity of corporate cultural contexts

Methods

Results

Conclusion