This paper investigates the phenomenon of chief executive officer (CEO) pay upside down within China’s listed companies and examines its impact on enterprise performance. Using the data of Chinese A-share listed firms from 2010-2019, this paper finds that CEO pay upside down negatively influences enterprise performance. Moreover, evidences show that (1) non-state-owned enterprise performance is more compromised by the inverted pay-position arrangement than state-owned enterprise performance; (2) when CEO’s shareholding percentage rising, the negative effect of CEO pay upside down on enterprise performance will be more restricted; (3) in the region with higher level of marketization, the inverted pay-position contract discounts more enterprise performance; furthermore, this moderating effect of the level of marketization is weaker in state-owned firms. This study adds to the literature about compensate incentive by investigating the effect of the negative pay gap and provides empirical evidences for enterprises to formulate effective compensation mechanisms.

Zhifei Wang. CEO pay upside down and enterprise performance: evidence from A-share listed companies in China. Academic Journal of Business & Management (2021) Vol. 3, Issue 3: 64-73. https://doi.org/10.25236/AJBM.2021.030312.

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