THREE ESSAYS ON EMPLOYMENT AND COMPENSATION IN CHINA

THREE ESSAYS ON EMPLOYMENT AND COMPENSATION IN CHINA

by

Lin Xiu

A thesis submitted in conformity with the requirements for the degree of PhD in Industrial Relations

Centre for Industrial Relations and Human Resources University of Toronto

? Copyright by Lin Xiu 2010

Three Essays on Employment and Compensation in China Lin Xiu

PhD in Industrial Relations Centre for Industrial Relations and Human Resouces

University of Toronto 2010

Abstract

The three essays in this dissertation address two prominent labour market and human resource management issues in contemporary China: gender pay differentials; and payperformance relationship in managerial compensation. Using three unique data sets, this dissertation examines three areas: the managerial gender pay gap in top corporate jobs; the effect of state ownership and managerial power on CEO compensation; and the gender pay compensation differentials in base pay, performance pay and total pay.

The first chapter uses a unique data set from a survey of firms and managers in China to examine the managerial gender earnings gap in China. The results show that female managers receive much lower pay than male managers. A larger portion of the gender earnings gap can be attributable to firm-level characteristics than individual characteristics. Female managers tend to have fewer firm-level characteristics that are associated with higher pay, and when they do, they tend to receive a smaller pay premium for those characteristics.

The second chapter uses a data set constructed for the study based on corporate annual reports. Results indicate that CEO compensation is positively related to the financial performance of the firms in both state controlled and non-state controlled firms. The compensation level, after controlling for various pay-determining factors, is higher in nonstate controlled firms and for CEOs with greater managerial power. The strength of the payperformance link is stronger in non-state owned firms compared to state owned firms (as indicated by the interaction between performance and state ownership). When state controlled firms and non-state controlled firms are analyzed separately, the pay-performance link is significantly weaker for CEOs with greater managerial power in non-state controlled

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firms, and weaker but not significantly so in state controlled firms (as indicated by the interaction terms between firm performance and managerial power variables). Whether CEOs are recruited from outside of the firm or from inside of the firm does not have an effect on either the CEO compensation level or the strength of the pay-performance link.

The third chapter examines whether and how the gender pay gap varies across different pay schemes: base pay, performance pay and total pay. The results show that women receive about three-quarters of male pay for each of the dimensions of base pay, performance pay and total pay, before adjusting for the effect of different pay determining factors. Decomposition analysis of the different components of pay (base pay, performance pay and "other" pay) indicate that males earn about 30% more than females in total pay with the gender gap in performance pay (35%) and in "other" forms of pay (28%) both being greater than the gap in base pay (25.5%). The unexplained or potential discriminatory component, however, is smaller for performance pay and "other" forms of pay compared to base pay, suggesting that there is not more discriminatory discretion in the awarding of performance pay and the "other" forms of pay compared to base pay.

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Acknowledgement This thesis would not have been possible without my thesis committees' consistent support and advice throughout the process. I owe my deepest gratitude to my supervisor, Professor Morley Gunderson, for guiding and coaching me on how to think and work as a researcher. I also would like to thank Professor Mike Campolieti for his statistical guidance, and thank Anil Verma and Rafael Gomez for their interest in my work. I am grateful to the administrative staff at the Centre for Industrial Relations and Human Resources led by Deborah Campbell. I wish to thank Monica Hypher, Bruce Pearce, and Vicki Skelton for the continuous support that you provided to my research needs. I wish to thank my colleagues and fellow students for their support, as well as the comments on my research during the PhD seminars. I wish to thank my parents, Zhongshan Xiu and Xiuju Man, for the consistent encouragement, endless support, and greatest sacrifices that they have made so that I could accomplish my work. I wish to thank my husband, Yufei Ren, who has supported me all the time. Finally, I dedicate this thesis to my son, Alexander Ren, who has been my primary motivation to succeed.

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Table of Contents

Chapter 1: Managerial Gender Pay Gap in Top Corporate Jobs in China 1. Introduction ......................................................................................................................... 1 2. Literature Review ................................................................................................................. 3

2.1 Gender Pay Differentials in China .................................................................................. 3 2.2 Literature on CEO Compensation in China .................................................................... 6 3. Data and Descriptive Statistics ............................................................................................ 8 4. Regression and Decomposition Results ............................................................................ 10 4.1 OLS Regression with Pooled Sample ........................................................................... 11 4.2 OLS Regression with Males and Females Separately .................................................. 12 4.3 Decomposition of the Male-Female Managerial Pay Gap............................................ 15 4.4 Sub-Decomposition of the Characteristics and Returns Components .......................... 18 5. Concluding Discussion ...................................................................................................... 21 Table 1 .................................................................................................................................... 23 Table 2 .................................................................................................................................... 24 Table 3 .................................................................................................................................... 25 Table 4 .................................................................................................................................... 26 Table 5 .................................................................................................................................... 27 References............................................................................................................................... 28

Chapter 2: Pay-For-Performance in Executive Compensation in China: The Impact of the State Ownership and Managerial Power 1. Introduction ........................................................................................................................ 31 2. China's SOE Reforms and the Managerial Labour Market................................................ 32 3. Literature and Expected Relationships ............................................................................... 35

Pay-Performance Relationship............................................................................................ 35 State-ownership and Pay-Performance Relationship .......................................................... 36 Managerial Power and the Pay-Performance Relationship................................................. 37 External Hiring and CEO Compensation............................................................................ 39 4. Data, Variables, and Summary Statistics ............................................................................ 40

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