Executive Compensation and Labor Investment Efficiency: A Perspective Based on Psychological Perception

This study examines the relationship between executive compensation and labor investment efficiency from the standpoint of executive compensation perception, using sample data from A-share listed companies in Shanghai and Shenzhen from 2010 to 2021. The results show that executive compensation and executive-employee pay gap have a U-shaped relationship with labor overinvestment, and an inverted U-shaped relationship with labor underinvestment. Further analyses reveal that the education level of employees negatively moderates the U-shaped relationship between executive compensation and labor overinvestment, while financing constraints positively moderate the inverted U-shaped relationship between executive compensation and labor underinvestment. The heterogeneity tests indicate that the relationship between executive compensation and labor overinvestment is significant in labor- and capital-intensive companies, whereas the relationship between executive compensation and labor underinvestment is significant in technology-intensive companies. The 2015 “Pay Ceiling Order” test confirms the effect of capping executive compensation on raising labor investment efficiency. Accordingly, this paper puts forward suggestions for companies to design executive compensation rationally.