It takes two to tango: Impact of salary co-movement between top executives and ordinary employees on corporate innovation

Zhukun Lou, Chong Wang, Yaxin Liu and Jing Xu

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: Building on social comparison theory, this study investigates the impact of salary co-movement between top executives and ordinary employees on corporate innovation. Using a sample of A-share listed companies in China from 2011 to 2017, we find that lockstep salary movement between top executives and ordinary employees positively influences corporate innovation. Furthermore, such effect is more pronounced for non-state-owned enterprises (non-SOEs), high-tech firms, and firms facing a highly competitive environment. Finally, this paper identifies heightened efforts and low turnover as two major mechanisms through which salary co-movement affects innovation. The takeaway message is that the optimal compensation policy for promoting innovation is to motivate both top executives and ordinary employees. Overly compensating one at the expense of the other will do just the opposite.

Keywords: Salary incentive; Salary co-movement between top executives and ordinary employees; Corporate innovation; Social comparison theory (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003070

DOI: 10.1016/j.frl.2023.103935

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