JEFMS Journal

ABSTRACT:

This study was conducted to analyze the impact of the compensation gap between executives and employees on corporate performance for companies listed on the Korea Exchange from 2010 to 2021. First, it was found that the compensation gap between executives and employees had a significant impact on sales performance and stock performance, suggesting that employees might feel deprived relative to the enormous compensations provided to management and their motivation to work might decline. These psychological factors also appeared to have an effect on subsequent corporate performance. Employees might become less loyal to the organization due to psychological factors and try to compensate for the situation by leaving their jobs. Second, the executive-employee compensation gap and compensation gap squared were found to have a significant impact on sales performance and stock performance, suggesting that the larger the compensation gap, the more it negatively affected corporate performance. In consideration of this, management must develop various compensation systems for employees and actively introduce and maintain employee welfare programs. Third, the compensation gap between executives and employees of chaebol (conglomerate) and non-chaebol firms was found to have a significant impact on operating performance and stock performance, and the compensation gap between the executives and employees of firms listed on the securities market and KOSDAQ was also found to have a significant impact on operating performance and stock performance. The results showed that the larger the compensation gap between executives and employees, the more it negatively affects corporate performance, regardless of whether the company is a chaebol or non-chaebol firm or listed on the securities market or KOSDAQ. Management must develop a wide range of compensation systems for employees and actively introduce and maintain employee welfare programs.

KEYWORDS:

Cash Compensation Gap, Operating Performance, Stock Performance, Nonlinearity

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