The Impact of Compensation Gap on Corporate Innovation: Evidence from China’s Pharmaceutical Industry

Liping Fu, Shan Zhang and Fan Wu
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Liping Fu: Department of Business Administration, College of Management and Economics, Tianjin University, Tianjin 300072, China
Shan Zhang: Department of Business Administration, College of Management and Economics, Tianjin University, Tianjin 300072, China
Fan Wu: Department of Public Administration, College of Management and Economics, Tianjin University, Tianjin 300072, China

IJERPH, 2022, vol. 19, issue 3, 1-14

Abstract: The pharmaceutical industry is typically driven by innovation, and is relevant to people’s livelihoods. How to effectively motivate pharmaceutical enterprises to engage in innovative activities is a hot topic. On the basis of the perspective of the combined effect of tournament theory and social comparison theory, this study explored the impact of internal compensation gap on corporate innovation by using data from China’s listed pharmaceutical enterprises during 2011–2018. The findings show a nonlinear (inverted-U-shaped) relationship between compensation gap and corporate innovation within the pharmaceutical industry, which illustrates that the role of the compensation gap is not endless. We also find the optimal compensation gap between executives and employees. Further analyses indicate that this association is more pronounced in regions with low marketization levels, and in large enterprises. Moreover, the practical significance of the results is explored with an expectation of providing theoretical references for the pharmaceutical industry to establish reasonable incentive mechanisms and promote innovative development, and for the government to introduce innovation incentive policies.

Keywords: pharmaceutical industry; compensation gap; corporate innovation; marketization level; corporate scale (search for similar items in EconPapers)
JEL-codes: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2022
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