Executive compensation gaps, promotion probability and corporate performance

In the past few years, especially since the outbreak of the sub-prime crisis, the issue of Executive compensation has become not only a public, but also an academic focus of controversy. This paper conducts an empirical study on the determinants of compensation gaps with 791 Chinese listed companies from 2000 to 2007. The result shows that there is a significantly negative relation between compensation gaps and promotion probability. After that, this paper turns to another empirical study on the relation between compensation gaps and corporate performance with 878 Chinese listed companies from 2003 to 2007. The result of our research is in favor of the tournament incentive theory, which demonstrates a significantly positive relation between compensation gaps and corporate performance.