Welcome to Francis Academic Press

Academic Journal of Business & Management, 2021, 3(3); doi: 10.25236/AJBM.2021.030312.

CEO pay upside down and enterprise performance: evidence from A-share listed companies in China


Zhifei Wang

Corresponding Author:
Zhifei Wang

School of Management, Shanghai University, China


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.


CEO, Pay upside down, Compensation, State-owned, Marketization

Cite This Paper

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.


[1] Cao, J., Lemmon, M., Pan, X.F., Qian, M., Tian G., 2011.Political Promotion, CEO Compensation and Their Effect on Firm Performance. SSRN Working Paper.

[2] Chen, D., Liang, S., Jiang, D., 2010. How Marketization Affects Incentive Contract Costs and Choices: Perks or Monetary Compensations? Accounting Research, 11: 56-64+97. (in Chinese)

[3] Chen, C., Wang, S., Zhu, L., 2019. SOE Executive Compensation and Corporate Social Responsibility—The Moderating Effect of Organizational Slack and the Market Process. China Soft Science, 6:129-137. (in Chinese)

[4] Chen, D., Chen, X., Wang, H., 2005. Regulation and Non-pecuniary Compensation in Chinese SOEs. Journal of Economic Research, 2:92-101. (in Chinese)

[5] Cowherd, D.M., and Levine, D.I., 1992. Product Quality and Pay Equity Between Lower-Level Employees and Top Management: An Investigation of Distributive Justice Theory. Administrative Science Quarterly, 37:302-320.

[6] Fang, J., 2009. Is Top Management Compensation of Chinese Public Companies Sticky? Journal of Economic Research, 44(03):110-124. (in Chinese)

[7] Fang, J., 2012. Senior Executive Excess Compensation and Corporate Governance Decision. Management World, 11:144-155. (in Chinese)

[8] Feng, G., Zhao, Y., 2012, Executive Compensation, Perks and Performance—An Analysis Based on Cooperative Game Theory. China Industrial Economics, 6:147-158. (in Chinese)

[9] Grossman, S.J., Hart, O.D., 1986. The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration. Journal of Political Economy, 94(4): 691-719.

[10] Grove,T., Hong,Y., McMillan, J., Naughton,B., 1995.China’s Evolving Managerial Labor Market, Journal of Political Economy, 103(4):873-892

[11] Hambrick, D.C., and Mason. P. A., 1984. Upper Echelons: The Organization As A Reflection of Its Top Manages. California Management View, 8 (3): 34-41.

[12] Hao, Y., Xie, G., S, R., 2018. External Supervision, Perquisite Consumption and Enterprise Performance. Accounting Research, 8:42-48. (in Chinese)

[13] Jensen, M., and Murphy, k., 1990. Performance Compensation and Top Management Incentives. Journal of Political Economy, 98:225-264.

[14] Lazear, E.P., Rosen, S., 1981. Rank-Order Tournaments as Optimum Labor Contracts. Social Science Electronic Publishing, 89(5):841-864

[15] Lian, Y., He, X., 2012. Crisis Impact, Big Shareholders’ "Housekeeper Role" And Corporate Performance—An Empirical Analysis Based on Chinese Listed Companies. Management World, 9: 142-155. (in Chinese)

[16] Lin, J., Huang, Z., Sun, Y., 2003. TMT Pay Gap, Firm Performance and Corporate Governance. Journal of Economic Research, 4: 31-40+92. (in Chinese)

[17] Liu, S., Wang, D., 2013. Executive Compensation Affects Firm Performance: The Empirical Comparative Study on State-owned and Non-state-owned Enterprises. China Soft Science, 2: 90-101. (in Chinese)

[18] Miao, Y., Hu, Y., 2014. Property Right, Salary Gap and Promotion Incentive. Nankai Business Review, 17(04): 4-12. (in Chinese)

[19] Mo, D., S, C., 2010. Related Test of Executive Compensation, Equity Incentive and Corporate Performance. Scientific Decision Making, 7: 18-29. (in Chinese)

[20] Rosen, S., 1986. Prizes and Incentives in Elimination Tournaments. American Economic Review, 1986, 76(4): 701-715.

[21] Sigler, K.J., 2011. CEO Compensation and Company Performance. Business and Economics Journal, 31: 1-8.

[22] Steven, N., Kaplan, 1994. Top Executive Rewards and Firm Performance: A Comparison of Japan and The United States. Journal of Political Economy, 102(3): 510-546.

[23] Wang, Z., Fu, G., Huang, D., Wang, J., 2014. Research on The Relationship Between Political Promotion and Non-Pecuniary Compensation of CEOs In State-Owned Enterprises. Management World, 5:157-171. (in Chinese)

[24] Wang, X., Fan, G., Yu, J., 2017. Marketization Index in China: The Regional Process Report of 2016. Social Sciences Academic Press, Beijing. (in Chinese)

[25] Wei, G., 2000. Incentives for Top-Management and Performance of Listed Companies. Journal of Economic Research, 3:2-39+64-80. (in Chinese)

[26] Wu, Y., Wu, S., Executive Compensation: Incentives or Self-Interests? — Evidence from Listed Firms in China. Accounting Research, 11:40-48+96-97. (in Chinese)

[27] Xia, N., Dong, Y., 2014. Executive Compensation, Employee Compensation and Corporate Growth—Based on Listed SMEs in China Empirical Data. Accounting Research, 9: 89-95+97. (in Chinese)

[28] Yang, R., Wang, Y., Nie, H., 2013. The Promotion Mechanism of "Quasi Officials": Evidence from China's Central Enterprises. Management World, 3: 23-33. (in Chinese)

[29] Yang, D., Zhao, C., 2012. Media Monitoring, Media Governance and Managers' Compensation. Journal of Economic Research, 47(06): 116-126. (in Chinese)

[30] Yu, L., Li, W., Wang, Y., Wang, D., 2019. Does Pay-Position Upside Down Influence Enterprises' Behavior? —An Empirical Study Based on A Shares of State-owned Enterprises. Accounting Research, 3:47-54. (in Chinese)

[31] Zhang, X., Xu, J., Xu, L., 2015. Can Executive Elite Governance Model Improve Corporate Performance? — Based on The Moderating Effect of Social Ties. Journal of Economic Research, 50(03): 100-114. (in Chinese)

[32] Zhang, Z., 2008. An Empirical Study on The Impact of Internal Pay Gap on Organizational Future Performance. Accounting Research, 9: 81-87. (in Chinese)

[33] Zhao, Z., 2002. The Economic Rationality of Internal Labor Market and Its Availability in China. Journal of Economic Research, 3:76-82+96. (in Chinese)