The Impact of Pay Gaps on Firm Performance

Abstract

The impact of the salary gap between executives and employees on corporate performance has always been a hot topic in academic circles, but from a horizontal perspective, there are few studies on the salary gap between employees at the same level and between different companies. This paper’s target is to inquire into the salary gap of lower paid employees on firm performance. This paper collects the opinions of ordinary employees on the salary gap of enterprises through questionnaire survey, and selects the employee salary data of listed companies from 2014 to 2022 in China for regression analysis. This paper finds convincing evidence that, from the perspective of the average employee, the pay gap between peers is a better motivator for them to work hard. According to the regression results, it is found that wage difference of lower-paid employees is positively correlated with corporate performance, but the correlation coefficient is not significant, which indicates that it is may not a simple linear connection. It shows that the excessive salary gap will also limit employees' attention to their own interests, and then affect corporate performance.