Vertical pay disparity, traditional Chinese culture, and employee productivity
利用中国国有企业薪酬改革的外生冲击，发现缩小高管与员工薪酬差距在权力距离和男性气质高的文化背景下导致员工生产率下降，且传统文化影响越强，下降越明显。
We examine how traditional Chinese culture interplays with pay disparity to affect employee productivity. In particular, we leverage an exogenous regulatory reform in Chinese state-owned enterprises (SOEs) to reduce vertical pay disparity (i.e., the difference between executive and average employee pay within a firm). Our results show that in a cultural context characterized by high levels of power distance and masculinity, a sudden reduction in vertical pay disparity is accompanied by a notable decline in employee productivity. Furthermore, the decline in productivity is more pronounced when employees are exposed to greater cultural traditionality. We also show that executive compensation declines after the Reform while employee pay stays unchanged. Importantly, our additional results show that neither managerial efficiency nor the departure of high-performing executives changed significantly after the Reform, and the performance effects of pay disparity are not primarily attributable to economic incentives for SOE executives or employees. Overall, our findings suggest that imposing pay restrictions without taking cultural context into account can have adverse effects on firm performance.