Manipulation effects of managerial discretion on executive-employee pay gap: A comparative study between the senior CEOs and the fresh CEOs

Abstract

The relationship between managerial discretion and executive-employee pay gap (EEPG) has received widespread attention both in the theoretical research and business practices of the corporate governance all over the world. However, the working motives’ differences of managerial discretion between the fresh CEOs and the senior CEOs in determining EEPG and many other business issues have been theoretically ignored to a large degree. Therefore, it is of great meanings to investigate the link between managerial discretion and EEPG by taking such motives’ differences into account in this study. Using the data set taken from the Chinese listed companies, the study empirically analyzes and confirms the following results: First, the manipulation effects of each dimension of managerial discretion on EEPG have distinctive intensity or strength because of different motives of the CEOs; Second, both the senior CEOs and the fresh CEOs have the motives and capabilities to manipulate EEPG positively, but they have very different motives; Third, the fresh CEOs, out of the greater firm-serving motives, are less intending to enlarge EEPG than the senior CEOs, who have the greater self-serving motives; Fourth, the fresh CEOs would like to link firm performance more closely with EEPG, while the senior CEOs would like to link firm size more closely with EEPG. Theoretical and practical implications of the study are discussed in the end.