Government Ownership, Non-CEO Top Executives’ Horizontal Pay Dispersion and Firm Performance

Wei Jiang, Bin Ke, Hong Ru, and Yue Xu

The objective of this study is to analyze the compensation practices of non-CEO top executives as a group measured by horizontal pay dispersion. We address two specific questions. First, we examine whether government ownership affects non-CEO executives’ horizontal pay dispersion. Second, we examine how such ownership-induced horizontal pay dispersion affects firm performance. We find that non-CEO top executives’ horizontal pay dispersion is lower in government-controlled firms (SOEs) than in privately-controlled firms (non-SOEs). We show that the difference in horizontal pay dispersion between SOEs and non-SOEs is consistent with the institutional differences between the two ownership types. There is evidence that such ownership-induced horizontal pay dispersion is associated with lower firm performance, suggesting that SOEs’ horizontal pay dispersion is suboptimal from the perspective of shareholder value maximization.

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