Pay Dispersion, Voluntary Managerial Turnover Rate and Corporate Performance

Mei Chun, Zhao Xiaoju

Foreign Economics & Management Vol. 38, Issue 04, pp. 19 - 35 (2016)  DOI:10.16538/j.cnki.fem.2016.04.002

Abstract

Based on tournament theory and equity theory,this paper takes vertical pay dispersion between CEOs and VPs as pay dispersion between the different levels of executives,and horizontal pay dispersion among VPs as pay dispersion between the same level of executives,and uses the data of A-share listed companies in China from 2005 to 2013,to examine the sorting effects of vertical and horizontal pay dispersion on VPs.At the same time,due to the differences in executive promotion mechanism and compensation system in the enterprises with different property rights,which may affect the sorting effects of pay dispersion on VPs,this paper also investigates the different sorting effects of vertical and horizontal pay dispersion in the enterprises with different property rights.The results show that greater vertical and horizontal pay dispersion leads to higher voluntary turnover rate of VPs,implying that vertical and horizontal pay dispersion has the negative sorting effects on VPs.Compared with non-state-owned enterprises,the positive effects of vertical and horizontal pay dispersion on VPs' voluntary turnover rate are greater in state-owned enterprises,implying that vertical and horizontal pay dispersion has greater negative sorting effects on VPs in state-owned enterprises than non-state-owned enterprises.Further study also shows that vertical and horizontal pay dispersion both has significantly negative and indirect impacts on corporate performance through VPs' voluntary turnover rate,implying that the sorting effects of vertical and horizontal pay dispersion on VPs have negative impacts on corporate performance.This paper not only extends the research on the sorting effect of pay dispersion on executives,but also provides empirical evidence for the influence mechanism of pay dispersion on corporate performance through executives' voluntary turnover behavior.

Keywords

vertical pay dispersion; horizontal pay dispersion; voluntary turnover rate; sorting effect; property right; corporate performance