Government Ownership, Top Management Team’s Pay Dispersion and Firm Performance

We examine how government ownership affects the top management team's (TMT) pay dispersion and how such TMT pay dispersion affects subsequent firm performance. We test three competing views on the influences of government ownership, referred to as the agency view, the equity view, and the social-political view. The agency view and equity view assume an SOE's objective is to maximize shareholder value while the social-political view assumes that an SOE pursues broader social and political objectives preferred by the government. Consistent with both the equity view and social-political view, the TMT pay dispersion is lower for SOEs than for non-SOEs. Consistent with the social-political view but not consistent with the equity view, we find that the TMT pay dispersion is lower for central government-controlled SOEs, especially those whose CEOs or board chairmen have higher political promotion prospects. Consistent with the social-political view, we also find that lower TMT pay dispersion induced by government ownership reduces firm performance. We also decompose the total TMT pay dispersion into the vertical pay dispersion between the CEO and other TMT members and the horizontal pay dispersion among the non-CEO TMT members. Our results hold for both the vertical and horizontal TMT pay dispersions. Overall, our results suggest that SOEs' TMT pay dispersion is not designed to maximize shareholder value, supporting the social-political view