Internal salary gap, government intervention and enterprise performance: Evidence from Chinese listed companies

Since the outbreaks of the international financial crisis in 2008, exorbitant executives salary has become a hot topic, and extensive discussions had carried out about salary fairness as well as whether salary gap of executives can realize the effective incentive. Based on the unbalanced panel data of Chinese A-share listed companies from 2005 to 2007, this article builds linear regression models between executive salary gap and enterprise performance which take the government intervention into account, and the empirical results show that: In companies whose internal salary gap is not big, the internal salary gap and enterprise performance are positively related and the reduction of government intervention is benefit to improve firm performance; Whereas in companies whose internal salary gap is exorbitant, the internal salary gap and enterprise performance are negatively related and the government intervention doesn't significantly affect firm performance. Our empirical results are helpful for the current executive incentive and salary reformation.