The Impact of Pay Ratio between Top Managements and Employees on Firm Performance

• Main Authors: WANG, SHIH-HAO, 王士豪
• Other Authors: WU, CHEN-HUI
• Format: Others
• Language: zh-TW
• Published: 2018
• Online Access: http://ndltd.ncl.edu.tw/handle/j4u8ja

碩士 === 國立中正大學 === 會計與資訊科技學系碩士在職專班 === 107 === Using a dataset of Taiwanese listed firms from 2012 to 2016, this paper examines the impact of pay ratio between top managements and employees on firm performance. Past studies usually are based on agency theory showing that the more absolute level of pay is, the better the firm performance. This paper attempts to build on tournament theory and equity theory, investigating the impact of pay ratio on operating performance and market performance on firms. Specifically, tournament theory holds that the pay ratio is the rewards for the winners in the promotion competition. The more rewards are, the more incentives for employees to work hard. On the other hand, equity theory holds that equity is measured by comparing the ratios of contributions and benefits of each person within the relationship. Individuals who perceive themselves as under-rewarded will experience distress, and that this distress leads to restore equity within the relationship. This paper applies the statistical analysis for the examination of tournament theory and equity theory hypotheses. The empirical results of this paper show that the pay ratio between top managements and employees are positively related to operating performance and market performance as well. The higher pay ratio is, the better the firm performance. Thus, this paper shows that the tournament theory is supported. Overall, the empirical findings of this paper are expected to serve as a reference for firms to adjust their pay structure and regulators to implement their policy.