How does Executive－employee Pay Disparity Affect Sustainable Corporate Growth?

다국어 초록 (Multilingual Abstract)

[Purpose]This study examines the influence of executive－employee pay disparities on a firm’s sustainable growth rate in Korea, where the regulatory frameworks have mandated transparency in the compensations of the top 5 executives. The primary focus is to analyze the two－way effect of executive－employee pay disparities, distinguishing between aspects that can be economically explained and those that are challenging to explain economically.
[Methodology]Using 2,938 observations, we explored the pay disparity between five highly compensated executives and employees and analyzed the impact of this gap on the company’s sustainable growth. We estimate economically explainable executive－employee and non－explainable pay disparity using Rouen’s (2020) methodology.
[Findings]We find that economically explainable executive－employee pay disparity increases a firm’s sustainable growth rate. Furthermore, this relationship is stronger in firms with high labor efficiency and productivity. Meanwhile, the negative relationship between Non－explainable pay disparity and a firm’s sustainable growth rate is more pronounced in firms with low employee wages.
[Implications]The study offers insights into executive－employee pay disparities and their impact on firms’ sustainable growth rates, emphasizing the importance of fairly designed pay disparities in long－term corporate success.

참고문헌 (Reference)

1 신재용 ; 정선문 ; 안상우, "직급 간 승진가능성과 임원 보수의 결정" 한국회계학회 29 (29): 95-128, 2020

2 성의철 ; 양혁승, "절대평가 대비 강제배분 상대평가 방식이 피평가자의 외재적 동기에 미치는 직·간접 효과: 기대공정성, 지각된 통제감, 기대결과치를 통한 억제효과를 중심으로" 대한경영학회 28 (28): 1009-1027, 2015

3 공현식 ; 강진아 ; 이주일, "문제해결형 탐색의 차별적 효과에 대한 탐구: 최고경영진의 임금 격차와 장기 인센티브의 조절효과" 한국경영학회 50 (50): 1129-1157, 2021

4 Mueller, H. M., "Within－firm pay inequality" 30 (30): 3605-3635, 2017

5 Main, B. G., "Top executive pay : Tournament or teamwork?" 11 (11): 606-628, 1993

6 Core, J., "The use of equity grants to manage optimal equity incentive levels" 28 (28): 151-184, 1999

7 Akerlof, G. A., "The fair wage－effort hypothesis and unemployment" 105 (105): 255-283, 1990

8 Faleye, O., "The determinants and effects of CEO－ employee pay ratios" 37 (37): 3258-3272, 2013

9 Arora, L., "The anatomy of sustainable growth rate of Indian manufacturing firms" 19 (19): 1050-1071, 2018

10 Bebchuk, L. A., "The CEO pay slice" 102 (102): 199-221, 2011

11 Correa, R., "Say on pay laws, executive compensation, pay slice, and firm valuation around the world" 122 (122): 500-520, 2016

12 Rouen, E, "Rethinking measurement of pay disparity and its relation to firm performance" 95 (95): 343-378, 2020

13 Lazear, E. P., "Rank－order tournaments as optimum labor contracts" 89 (89): 841-864, 1981

14 Kale, J. R., "Rank－order tournaments and incentive alignment : The effect on firm performance" 64 (64): 1479-1512, 2009

15 Kelly, K., "Investor reactions to company disclosure of high CEO pay and CEO－to－employee pay ratio : An experimental investigation" 28 (28): 107-125, 2016

16 Schwarz, M., "Investment tournaments : when should a rational agent put all eggs in one basket?" 28 (28): 893-922, 2010

17 Xuesheng Chen, "Firm Sustainable Growth during the COVID-19 Pandemic: The Role of Customer Concentration" Informa UK Limited 57 (57): 1566-1577, 2021

18 Chen, Z., "Executive pay disparity and the cost of equity capital" 48 (48): 849-885, 2013

19 Bebchuk, L. A., "Executive compensation as an agency problem" 17 (17): 71-92, 2003

20 Martins, P. S, "Dispersion in wage premiums and firm performance" 101 (101): 63-65, 2008

21 Shin, J. Y., "Determinants and performance effects of executive pay multiples : Evidence from Korea" 68 (68): 53-78, 2015

22 Boubakri, N., "Culture and externally financed firm growth" 41 : 502-520, 2016

23 James Nelson, "Corporate governance practices, CEO characteristics and firm performance" Elsevier BV 11 (11): 197-228, 2005

24 Masulis, R. W., "Compensation gaps among top executives：Evidence of tournament incentives or productivity differentials?" FIRN 2013

25 Chan, H. L., "CEO－employee pay gap and firm R&D efficiency" 19 (19): 271-287, 2020

26 Brookman, J., "CEO tenure, the risk of termination and firm value" 15 (15): 331-344, 2009

27 Stuebs, M., "Business reputation and labor efficiency, productivity, and cost" 96 : 265-283, 2010

28 Bao, M. X., "A path analysis investigation of the relationships between CEO pay ratios and firm performance mediated by employee satisfaction" 48 : 100457-, 2020