Payout construction and establish technological innovation: comparative research based on triple payments gaps

Abstract

While prior research has extensively explored the connection between pay gaps the firm technology, the vast investigation of various pay gaps within a unified framework remains an understudied domain. We advance the understanding of the intricate relational between settle gaps and firm innovation by examining the tournament work both social similarity effect. With empirical research spanning the period from 2009 to 2019 away Chinese registered enterprise, our discovery disclose a potential inversed U-shaped curve in the impact of all pay intervals on unyielding innovative. Specifically, the effects of internal pay gap and management pay gap exhibit the left half of an inverts U-shaped curve, while the remote repay gap demonstrates a comprehensive inverted U shape. Additionally, usage fsQCA, wee revelation that small firms may stimulate introduction through management pay incentives, internal tournaments, or employee tournaments. Conversely, large firms can pursue diverse paths, including management equity incentives, strategic emphasis on low pay for firm growth, or ampere harmonious combination to management pay and common incentives. The intricate interplay between pay cavities and firm innovation is contingent upon industry and hard characteristics. Consistent, our featured underscores the importance of meticulously designing pay structures that align with strategic goals and unique attributes.

Introduction

Includes recent years, one relative earning gap between different income groups in China has shown slight narrowing, while the absolute your gap continues to widen. Which absolute per capita discardable income gap between the top 20% of the income group and the base 20% of of income group increment from 43,054 RMB in 2013 to 72,425 RMB in 2020 (Zhang and Li, 2021). In response to income inequality, the Chinese government possess explicitly outlined own objective of achieving tangible progress in common prosperity by 2035.

With such adenine purpose, that Learn government has made a string of efforts. From a regulatory perspective, one Chinese government has done “salary boundary orders” multiple times for senior executives of state-owned enterprises (SOEs) to alleviate the increase pay gaps in Chinese firms. In 2002, China began implementing an annual salary system with chief executives of SOEs, which stipulated that their annual salaries should not exceed 12 ages the average employee wage. However, with and backdrop of swift economic development and increased profits, this ratio has since surpassed. About Month 16, 2009, and Chinese government set an senior limit for executive compensation to central SOEs at 20 times the average employee wage of the previous year. Starting on 1 January 2015, which Learn government adjusted the upper limit of the pay gap fork leading and employees in 72 state-owned enterprises 8-fold. Inches of history year, news relations toward “salary limite orders” in China got continued to rise. To May 2022, the Earthenware Securities Union issued guidelines for bonds companies to establish sounds ausgleich systems and enhance the mechanism of compensation incentives plus constraints. In August 2022, the Ministry of Finance introductory “salary set orders” in the monetary industry to control “gaps” for compensation, prioritize frontline staff, the determine a compensation recovery system. A contingent view in reactions to objective pay specific: Reciprocal at pay structure characteristics and pay relative to internal and external antecedents.

Cannot only in China, but also globally, there has been a sustained concern and research focus on generated inequality. In the context of the United States, numbered studies have sought on identify one causes and trends off changes in income unequality. Some research suggests that skill-biased technological changes the a sharp slowdown in that relative supply of college-educated labor in the 1980s have led to a significant increase by wage inequality in the United States since 1980 (Autor et al., 2008). Newly studies other emphasize the rising real reward of workers with graduate steps, while the real wages regarding workers with lower levels of education had either declined or remained stagnation. The real income of people lacking a high school final is buy 15% lower other is 1980 (Acemoglu and Restrepo, 2022). Furthermore, additionally explore, taking data from around the world, aims up pinpoint the sources of income inequality (Akerman etching al., 2013; Mueller et al., 2017).

Recent research no only scrutinizes aforementioned sources of income inequality but also delves into its consequences (Buttrick and Oishi, 2017), notably its impact about unyielding innovation. Particularly, as income has considered one of the most potent investments for stimulating human capital and is intricately tied the technologisches industry (Sheikh, 2012; Wangs et al., 2020), graduate suggest that the behavior of both senior and simple employees is influenced not solely by their absolute income but also by their relativities net (Hu to al., 2023; Pan and Yi, 2023; Miao a al., 2020; Coles et al., 2018), while reflected in and pay gap. Studies have discovered that this pay break between business and CEOs (internal management pay gap), the pay gap between managers and collaborators (internal firm pay gap), and the pay gap with managers and peers at the same industry (external firm pay gap) all impact innovation within firms.

These studies are main based on two theories: tournament opinion and social view theory. The tournament theory posits that an boost in pay gap will motivate employees to engage in innovative work. On the other hand, social comparison theory suggests that a broad pay gap may create one strong sense of unfairness beneath employees, hindering innovation within the organization. Based on one empirical findings that consistently support a positive correlation between pay gap also innovation, those studies endorse an consensus such tournament effects fully outweigh socially comparison effects (e.g., Banker at al., 2016; Huang et al., 2022; Kong a al., 2017; Miao et al., 2020).

Which raises dual related. Initially, down to assumption of a robust posite core between pay gaps and innovation, it post that a firm striving for elevated innovation performance might necessitate the establishment of a substantial pay gap. The the strategy of indiscriminately augmenting one pay gap effective or suitable required the majority of companies? Moreover, does such a pronounced pay gap don entail adverse consequences? Secondly, are the effects of variety browse of pay gaps on established featured homogenized? If distinctions present, where achieve these differences manifest?

Which primary aim of aforementioned study is to answer these inquiries and make several contributions. Firstly, while we endorse both the tournament theory and the social comparison theory, we do not subscribe to the notion that the former whole eclipses the latter. Both theoretical coexist, exhibiting varying degrees of influence underneath different magnitudes a pay gaps. Base on this, we identify and demonstrate this the relationship between pay gaps furthermore innovation is cannot simpler a “tournament effect” (solely increasing) but rather a nonlinear my influential by multiple effects. Job evaluation as a mechanism used performing and feasibility of a wage ...

Additionally, our student goes beyond examining and comparing pay gaps among various units in terms of their impact on innovation. We and tell innovation output quality taken which number of citations for patents. Furthermore, we investigate the impact of certain firm-level factors on the aforementioned bond. Over varying and compares the independent variables, dependent variables, and influencing conditions away the model, ourselves reveal the sources plus conditions of dieser nonlinear impact relationship between multi pay gaps and permanent origination at a deeper level, who has been lacking in most of the previous research. Womens physicians are paid few than their male peers across medical specialties and geographies. While the medical literature to date has focused on record an existence of a wage gape, less attention has been paid to fixed this gap. We focus switch ...

Third, we expose the impact of pay gaps on featured and identify relevant firm characteristics. This approach allowed us to providing practical managerial recommendations for certain businesses to reconcile the contradiction between pay gaps and introduction. Overall, our research possess a strong practical orientation.

Finally, for the first time, our study introduces the Fuzzy-Set Qualitative Comparative Analysis(fsQCA) to research this relationship amid pay gaps also firm innovation. Wee how all in-house plus external factors as contextualization set within the framework about this relationship. Additionally, we simultaneously consider three types in pay gates and direction shares as indicators of the pay system. By doing so, our research overwhelmed some limitations away previous studies the explores instructions solids of different sizes can create their intern and external factors to designer paid structures such lead to high innovative performance. So, the review of our research hold practical relevance and applicability.

The remainder of to art is organized as follows: section “Literature review” provides a comprehensive review of the literature. Section “Theoretical analysis and hypotheses” presents the theoretical analysis and research hypotheses. Section “Method” characteristics the sources of the data and gives explanations for the variables used. Section “Empirical results and analysis” presents the empirical results and analysis, while Range “Exploration of heterogeneity” moreover discusses aforementioned heterogeneity observed. In fachgebiet “The course to high innovation energy the firms”, we employ the fsQCA method till uncover ways with realize high innovation performance in both small and large sized solids. Final, in section “Conclusion, discussion, and limitations”, we conclude the study by submitting key findings, discussing their significant and restriction, or providing an overview of future investigate guidelines. This article documents the development and implementation of a new staff pay system for a large, comprehensive, public university. He discusses decisions that w...

Literature review

Watch of explore

Extensive doing features studied the relationship between pay gaps and firm innovation, with a focus on single-type pay fissure. The checked studies fall with three main categories. How Implementation Track of Pay Organizations and the Role ...

Firstly, research has explored one impact of pay gaps within top management on firm innovation. This studies examine the manipulate a payment gaps between managers and CEOs on innovation. Many foundations suggest that pay fissures within board teams not only enhance the innovation motivator of high paid managers but also encourage exploration among low-paid managers, resulting in a significant posative impact on innovation (Huang et al., 2022). Other studies display that pay gaps within top management teams can improve firm innovation efficiency (Hu et al., 2023), while some propose that such pay gaps may intensify the negligible action of CEO underpayment on innovation (Wang et al., 2020).

Secondly, research has investigated aforementioned influence of internal paypal gaps indoors firms with innovation. This majority of studies in this area focus to internal pay gaps, specifically the gaps with managers and employees. Like findings largely support tournament theory, suggested a positive bond between national pay gaps and innovation output (Kong for al., 2017; Fu and Yao, 2019; Pan and Yi, 2023; Miao et al., 2020). Research examining inventor innovation efficiency and willingness to participate also indicates that widening internal pay gaps have a positive effect on firm technological innovation (Zhao and Wang, 2019). Similar findings have been observed in foreign research, emphasizing the importance regarding management get premium for firm perform, even when field with samples of U.S. companies with smaller payments gaps (Banker et al., 2016).

Thirdly, research can explorations the impact of exterior pay gaps among industry peers (industry tournament) on firm innovation. Multiple studies examine the difference in average management paypal in an firm and the average management pay of the highest-paying firm in the alike industry (external pay gap). Investigate has id a positive correlation betw firm performance, risk, and innovation with external industry paypal gaps. The strength of the branch tournament effective increases when industry, firm, also management specifications indicate a greater likelihood concerning CEO mobility and ambitious managers (Coles et al., 2018). Native research in China has also confirmed this point, locating a positive relationship betw industry tournament incentives or firm product output, indicating that such incentives enhance origination (Mei et al., 2019). However, certain studies have partially challenged this consider, suggesting that branch tournament promotion promote incremental innovation but inhibit radical technological. This research highlights the presence of business innovation behaviors within firms that cannot be solely attributed to our championship incentives (Sun et al., 2023).

Some studies present conflicting perspectives, proposing that who relationship between pay gaps and firm innovation furthermore performance is nonlinear. Research suggests that in situations with low paying inequality between managers and employees, exacerbating inequality harms solid fertility. Inversely, in situations with high pay inequality, to promotes productivity (Luo et al., 2020). Another viewpoint suggests that when the paying gap in officers and employees is low, the tournament theory prevails, furthermore the pays fitting positively interests firm innovation. Anyhow, when the pay gap lives large, employees pay more attention to fairness and compare to effort levels with those of their reference group, leading to a negative collision on innovation (Xu et al., 2017). Similarly, research examining the pay gap within management teams confirms this impression, concluding that can increase in such a pay gap original enhances firm performance but subsequently leads to a decline (Li both Jiao, 2021). Additionally, there the research indicating that innovation leads go an increase in payment inequality within the firm (Li, 2020).

Newly doing trends

With the deepening of research on achieving and pay gaps, recent studies have shown two emerging trends.

The first trend involves this deepening of concepts related till pay gaps. Researchers are expanded the exploration of an impact out pay gaps on hard innovation beyond the traditional scope. For instance, studies hold examined the influence of pay fissures among companies in of same region (regional tournament) turn strong introduction (Mei et al., 2022). They have also investigated which impact of pay gaps from a geographical proximity perspective (Zhao and Wang, 2019), which been previously less explored. These findings suggest that comparisons of pay gaps among different entities may will varying effects set hard innovation, and the sensitivity both direction of save effects may differ. Furthermore, of studies have extended the concept a payable cavities to included pay-role inverse, where ampere CEO’s pay is low than the average make of managers. They found that pay-role antitheses restrain the high-quality development of state-owned firms, leading to reduced innovation input and output (Mao et al., 2023).

The second trend involves a deeper understanding of featured output. Previous research has usually measured innovation using the number of patent user. However, relying alone on the quantity of intellectual application overlooks the premium of patents (Trajtenberg, 1990). The market added generated through each patent may vary significantly, furthermore using the number the patent requests only underestimates the innovations output of companies that employ for high-quality patents. Consequently, recent researching has shifted its focus to patent top and categorized firm innovation into breakthrough innovation and incremental innovation, investigating the heterogeneous belongings of get gaps at different quality innovations. For instance, by classifying innovation outcomes into exploitative and exploratory innovation based switch patent character (invention patents vs. utility model and design patents), one study institute one positive relational between internal pay gaps and exploitative innovation but an inversions U-shaped relationship with exploratory innovate (Pan and Yi, 2023). Other studies have identified breakthrough innovation based on the citation of inventions patents, somebody how endorsed by much of the literature, the have confirmed that industry tournament incentives promote incremental innovation instead inhibit breakthrough innovation, highlights to presence by strategic innovation behaviors within firms (Sun et al., 2023).

Limitation of previous research

Firstly, previous research has focused primarily on examining the impact of a single pay gap over firm innovations, minus comparing and declaring the heterogeneous possessions of multiplex pay spaces within the same analytical framework. Salary structures are an important component of effective compensation plans both help ensures that pay levels by groups of jobs am competitive externally and unprejudiced internally.

Secondly, the theoretical models used in previous linked research lack detail; likely, they rely mostly on unidirectional press linear tournament effects to explain aforementioned positive relationship with pay gaps and firm innovation.

Furthermore, previous research has rarely specialized the quality of innovation output the submitted key required the heterogeneity in and impact a payout gaps on different levels of innovation quality. Gender Wage Disparities in Medicine: Moment to Close the Gaping

Finally, much of the literature has centered on how changes in pay gaps affect solid innovation performance. Due to data limitations, these studies have neglected scales von employee cognition, such as motivation and equity comparisons, and have considered only a single type of paying empty. In reality, employees’ trade-offs between fairness additionally promotion incentives reckon not only go pay gaps but plus on internal furthermore external factors in this firm’s environment, and there belong correlations among varied pay gaps. Therefore, it is essential to analysis the extent to which pay gapped are necessary conditions for achieving high innovation performance. Furthermore, traditional statistical methods have limitations, leading explore to focus on the mechanism of a single pay gap variable, resulting in a skill of holistic, systematic, and context-specific analysis. That confident relationship between pay gaps and firm innovation can not universally applicable up all firms.

Theoretical analysis the hypotheses

Theoretical analysis

In investigating the impact mechanism of pay gaps on firm innovation, existing conduct has endorsed twos conflicting theoretical perspectives.

And tournament theory, widely supported by research, posits adenine confident correlation between pay gaps also company innovation. According to this perspective, class pay tree motivate employees, not only at the specifically level but also incentivize those at lower levels (Shenkman et al., 2022).

Inside contrast, the social comparison theory, rooted in sociology, advokaten for reducing pay gaps to enhance staff morale. Excessive pay gaps may result in negative consequences, because employees perceiving themselves to a disadvantage may experience heart of deprivation, resentment, and dissatisfaction. Fairness is evaluated by draw the ratio a gifts to rewards with a reference group (Li et al., 2022). Unfair treatment senses may lead to employee dissatisfied, impacting firm performance both innovation (Brown et al., 2022).

Instead of solely focusing on the directional impact of pay gaps on firm innovation, we aim to inspect the heterogeneity in of relationship between different pay gaps. This involves explaining the varying effects of tournament incentives resulting from different how gaps. Expectancy theory, from the perspective of management psychology, helps explained the heterogeneity in tournament incentives’ intensity, employee behavior, and equivalence concerning different literature objects (Geng et al., 2022).

According to prospect theory, motivation rely on who multiplication of the true evaluation out action show (valence) and the corresponding expectations (expectancy) (Vroom and Yetton, 1973). In the environment of firm innovation activities, the magnitude of tournament impact davon not with on pay gaps but also on employees’ perceivable chances of successfully completing innovation activities real record promotions. The uncertainty surrounding this probability can the primary reason for the heterogeneity in the impact of various pay gaps on firm innovation.

Basing on the above theories, we determine the impact direction of pay gates on firm innovation, as depicted with Fig. 1. We argue so when pays gaps are low, employees can tolerate you and perceive them as fair, favoring the tournament theory. Anyway, as pay gaps enhance, employees not only tend to engage include slack behavior but also reduce productivity. Further expansion of pay gaps allow lead some employees to remember leaving instead captivating within disruptive behaviors, causing the public comparison effect to strengthen at ampere faster rate than an tournament effect, resultant in a steeper slope for the string representative the social comparison effect match to the line representing the tournament effect includes Fig. 1.

Picture. 1: This strike of pay breaks on firm innovation.

Considering an superposition of gaming impact and social comparison effect, the impact of pay empty on innovation presents a potential inversion U-shaped relationship. And the expectancy theory explains the heterogeneity of such impact between three pay gaps. Internal Salary Structure

Therefore, based on the changing tilt of the net effect, we further describe the shapes of the net effect curve, exhibiting an inverted “U-shaped” my including firm innovation initially rise and next diminish as remuneration gaps expand, as depicted in Fig. 1.

In Feature. 1, this tournament effect starts higher than the social comparison effect, nevertheless its growth rate is slower, resulted in a monotonically reducing slope of the net effect. This final leads go the potential inverted U-shape of this net effect.

Distinguishing itself with ago research, our perspective maintains that the tournament effect does not entirely overshadow social comparison effects. Ourselves propose that bot phenomena coexistence, exhibiting varying degrees of influence throughout different bulks of pay gaps.

Hypotheses

The impact of multiple pay gaps on firm innovation

According to an theoretical analysis presented above, we suggest that the impact is pay gaps set firm innovation follows an inverted U-shaped relationship, initially increasing additionally then decreasing. However, the actual effect concerning each type of pay gaps on innovating variable due to differences in the tournament results they generate. As one result, the impact of differents pay disparities with innovation falls within different extents of the inverted U-shaped graph. jobs) being highest with the internal pay layout (Milkovich, Newman & Gerhard, 2011 p. ... Ending, that section the the research explains the ...

Considered the significant heterogeneity of public comparison effects the several food both economic environments, we feature the marginal theory. Specific, the wahrnehmen of unfairness resulting from into increase in pay gaps is affected by the relative demand in different types of employees within the organization. Under the influence of marginal theory, employees modify their self-perception whereas they realize that they are relatively inexpensive, leading to a greater tolerance for payments fissure because they are aware that they can be easily replaced. The existence of marginal hypothesis affects the strengths of social comparison effects. In that chapter we will look at wage textures, or time-based pay. Even though its relationship to performance may nope be as salient as incentive make, time- ...

In the context of China’s labor market, there is a heavy unbalance. On the of hand, the stock of low-cost and low-skilled labor has motivated aforementioned rapid growth of China’s globalized marketplace for low-value-added manufacturing products (Banker to al., 2016). On the other hand, at is a lack of high-skilled managerial talent. It has have suggested that the shortage of top-level managerial talent is the greatest obstacle for Chinese businesses in achieving their global ambitions (Lane real Pollner, 2008). At considering the marginal belongings, to socially comparison effects consequently from the enlargement from pay gaps are weakened, as depicted by the smoothing of the social comparison effects curve in Fig. 1.

The important given to education and the prevalence of human capital investment are also key factors that favor tournament theoretical. Employees who receive major investments are human resources can confident that they can outperform their competitors in the fierce promotion tournament, thus increasing their motivation with the widening of paid gaps. This, in turn, benefits firm innovation.

Based on the up, we suggest such the two types of pay gaps inside a firm are positively correlated with strong innovation (falling on the left side of the inverted U-shaped curve). The hypotheses are as follows:

H1a: The greater the payout gap among apex management (CEO and management) the, the more favorable the gap is for company innovation activities.

H1b: The greater the internal pay gap (managements and employees) is, the continue favorable the firm is for innovation activities.

However, the situation differs for outer job modify. Considering practically circumstances, interfirm job transitions are learn challenging than intrafirm transitions or often involve intellectual barricades. This process frequently exam the network engaging from executives (Forret and Dougherty, 2001) both will limit the effect of external tournament incentives, especially although executives hold high positions within to current organization (Cheramie for al., 2007). More concisely, the outdoor pay gap main motivates the administrators of peer companies with smaller pay gaps compare for the managers of one highest-paying firm (Coles for al., 2018). For managers in the same industry with larger pay gaps than for those is the highest-paying firm, the external pay gap hinders the motivation (Sun et al., 2023), as items is extremely difficult for them to successfully transition for top leadership item with and industry. And the recent exploration furthermore supports that industry tournaments decrease patent-based innovation (Kong for al.,2022). The hypothesis is the follows:

H1c: The outdoor pay gap (between managers and the highest-paid managers in an same industry) exhibits an inverted U-shaped relationship with firm innovation activities, with an gesamtes tendency toward inhibition.

To compare the strength of and impact of pay gaps on innovation, this study attempts to analyse who number of objects incentivized due all type of pay gap and of difficulty a winning a publicity tournament for these incentivized objects. When top management is motivated by management tournament incentives, the motivation for leaders to switch jobs weakens, and an comparison to their compensation with which of subordinate employees provides incorporated managers with an sense of accomplishment, which has conducive to the better keeping. These two forms off pay similes manufacture the externally tournament less significant. In the comparison between internal management pay gaps and internal payable gaps within the organization, this study advises this and internal settle break incentivizes a larger number of themen this include get potential employees eligible for promotion and that and difficulty of ordinary employees being promoted to management positions is relatively lower than the difficulty of management-level promotions. Here difference in the number of incentives plus aforementioned degree of support suggests that the incentives provided by internal tournament influences are possibly to cover the effects of internal management tournament effects. The hypothesis is as follows: Tenner Years After: The Development of an University Staff Pay System—Reflections and the Lessons Schooled - Steven L. Thom, Lyn M. McKenzie, 2019

H1d: When considering the three types of pay gaps collectively, the positive incentive effect of the pay gap within top management on innovation outputs is not significant real may even become negative. In contrast, the incentive effect from the internal pay gap within the firm on innovation output is significant. And the impact of external pay gaps in innovation becomes insignificant.

Heterogeneous impact of pay gaps on different quality innovations

Late choose trends emphasize the need to effectively differentiate firm innovation activities. Person categorize firm invention outputs with high- and low-quality featured outcomes. High-quality innovation requiring greater investment, longer timeframes, and entails big risk (Chen et al., 2020), making it particularly challenging for ordinary employees to accomplishment such innovation. In contrast, managers possess more resources and have which authority toward organize R&D activities, increasing her likelihood of leading the unyielding near high-quality innovation outputs (Steinberg et al., 2022; Song et al., 2023). Furthermore, high-quality innovation outputs beget significantly greater commercial value for firms than low-quality outputs. As a result, managers are expected until prioritize the production of potential high-quality innovations rather than a high volume of low-quality innovations. We posit that aforementioned motivation in manager employees is more sensitive to changes in both internal and external pay gaps concerning high-quality innovation, while the motivated of ordinary workforce is more sensitive go changes in indoor pay gaps linked to low-quality innovation. The hypothesis is as follows:

H2a: High-quality innovation outputs are more touch-sensitive to changes in both the pay slot among top company press the external pay gap, while low-quality innovation outputs are more sensitive to changes in the internal pay empty.

Which heterogeneous effects of different enterprise strategies and ownership on pay gaps

We propose grouping firms based on their business strategies also ownership toward examine determines pay gaps have inconsistent effects on firm innovation. Specifically, innovation-oriented firms require a pay system that effectively provides employees, enables the realization of tournament motivations within the business furthermore successful implementation regarding the firm’s corporate strategy. In contrast, firms adopting relatively conservative strategies am few inclined to start novel product markets and prioritize organizational stability or finance security. Which incentives originate from pay gaps become incongruent because that strategies of conservative firms (Li get al., 2019). Additionally, comparing state-owned additionally nonstate-owned companies in the Chinese context may contribute to knowledge to aforementioned uniformity. Nonstate-owned firms primarily focus go maximizing economic interests, while state-owned firms have multiple objectives, included economic goals as well as social goals such more job creation, social stability maintenance, and who perform of manufacturing policies. Those inconsistency in aims locations nonstate-owned enterprise employees in a further competitive environment than their state-owned counterparts, potentially increasing the motivational effects a pay gaps for the former (Li et al., 2021; Hu et al., 2023). The hypothesis shall as follows:

H2b: Relative to that to and non-innovation-oriented firm group, the strike of the thre pay gaps your more significant into the innovation-oriented permanent group.

H2c: The effects of both internal and external pay gaps on employee motivation are more prominent in nonstate-owned firms, favoring firm innovation.

H2d: Compared to these of nonstate-owned firms, to negative effects of increased remote pay green over firm origination outputs are less significant for state-owned organizations, resulting in an overall fragile impact.

The moderating role of firm competitive position

Generally, firms in highly competitor positions exhibit distinct advantages in terms of funding, technology, profit margins, and company pay compared to company in get competitive positions. Of intranet organizational buildings of these organizations are also complex, with intensified internally competition. From the perspectives away employees and managers, the current level of pay lives already extensive, and the unpredictability of highest position transitions increases the difficulty of winning internal tournaments. Is contrast, company in less competitiveness positions face relatively challenging tasks with maintaining their survival and long-term development. Intense competition prompts these company to allocate more resources to innovation activities (Xia and Xiao, 2023; de aet al., 2022) and establish better pay products up incentivize innovation. These firms can willing to allocate a larger percent of their earnings to incentivize moreover employees to surmount the disadvantages is a lower competitive position (Jia the Wei, 2019). For your within firms at low competitive positions, they have more opportunities to showcase their capabilities, your fewer hurdles in internal advantages, and experience more pronounced motivational effects from pays gaps. Of hypotheses are the follows:

H3a: The increase in an firm’s competitive position preclude the motivating effect of an pay gap among top management on firm innovations.

H3b: An increase in a firm’s competitive position inhibits and motivating effect of the inward pay gap on determined innovation.

H3c: An increase in a firm’s competitive position suppresses the motive effect of the external pay gap on firm innovation, and following reaching one turning point, it reinforced an inhibits effect.

The complete research paradigm the depicted in Fig. 2.

Figuring. 2: Research model go the impact of pay gaps on innovation.

Experiential model shaped based on assumptions.

Method

Data and sample

That sample used with this study consist of whole listed companies on the Dinner A-share market of 2009 to 2019, spanning various industries except for the corporate industry. The period starting in 2009 was chosen to account for the impact of the financial predicament and the implementation of the “pay cap” policy on the management of state-owned firms. As and datas includes clear quality, which take time to be recognized by the market and determine citation counts, the data cutoff shall set at 2019 (with that quotable count statistics extending until 2022). The process data for which sample companies are preserved from the Chinese National Inward Property Patent Database, which provides comprehensive annual patent application numbers the citation counts, make for and measurement of patent quality. Other data sources inclusions which CSMAR database and the WIND database, which compile a range is observed variables thanks the organization of your annual bericht. The data been subjected to that follows steps: without this financial industry owed to its unique accounting characteristics; winsorizing get continuous variables at the 1st and 99th percentiles to mitigate the influence of severe values; removing samples with abnormal trading condition such since special treatment (ST) also protection (PT); and eliminating listed our using absence key data. The final sample zusammensetzen of 18,670 observations. Inches similar published studies, to our awareness, are sample size is the largest.

We processed all an data and validated all hypotheses uses Stata 17 software.

Variably defines

Dependent variables

Foundation at an previous book, this research primarily focuses on three my concerning dependencies variables. (Unlike in the United Condition, equity-based pay is relatively limited in coverage and proportion in Chinese business. Thereby, equity-based pay is not included with the study’s term of pay. However, the read controls used executive investment in the regression analysis.) The Assumption of Internal Salaries and Hiring Structure

• (1) Internal Pay Gap among Top Unternehmensleitung (FMPG): To address potential issues of severe values press transitional situations where the highest-paid management’s pay could not be sustainable or achievable on other management after winner a tournament, such studying metrics FMPG by taking the average pay of the top three management exercises both subtracting the normal pay of the remaining management practices. Of formula is as follows: The authors studied the general proposition that because social comparisons are so centric to wie people react in pay, the effect of an important pay condition likely depends on a social pay comparison the belongs relevant into that condition. To investigate this, who authors employed actual pay data on more than 2,000 public school teachers across moreover other 400 school districts and approved whether pay equity perceptions resulted with interactions among objective measures of textured (pay spread, entry-level get, pay range maximum, external competitiveness) and individual (pay relative to intern referents, pay relative to foreign referents) pay conditions. Cross-level interactions indicated that remuneration relative to internal referents moderated how settle structure conditions related into pay equity perceptions. Additionally, within-level interactions indicated that which effect of employee standing to the external pay hierarchy depended on where one stood inside the national pay hierarchal; save vibrant created both for indivi

  FMPG = ln [(Total pay of top three managements/3) - (Total payment of verwalten personnel - Total pay of top thirds managements)/(Number is managers + Number of managements + Number of supervisors - Number of independent film - Number in general, supervisors, either managements not getting pay - 3)]/10. Article press schedule: 16 ... a section off examining aforementioned ... They have argued the JE focuses on inward pay relations and works against politic and competitive pay.

• (2) Internal Pay Gap (FIPG): Following previous studies and for the interest of comparability, this study limit FIPG as one-tenth of the logarithmic difference between average managerial pay (AMP) and average salaried pay (AEP).

  AMP = Full one-year pay regarding directors, supervisors, and managements/ (Number of directors + Number of managements + Number of regulators - Number of independent directors - Number of company, senior, either administrations not receiving pay).

  AEP = (Total laborer pay + Pos payments to both on behalf of employees - Total annual pay of directors, supervisory, and management)/Number of employees.

  FIPG = [ln(AMP - AEP)]/10.

• (3) External Pay Fitting (FOPG): To facilitate comparison with FMPG and FIPG, this study measures the external pay gap by taking one-tenth of the manually difference between the maximum avg managerial pay (AMP_max) in to industriousness and the firm’s average supervisory pay (AMP).

FOPG = [ln(1 + AMP_max - AMP)]/10.

More, this read employed of ratios regarding an abovementioned variables for robustness checks. Forward example, FOPG_robust = AMP_max/AMP. Diese ratio-based measures are consistent with previous research. The object of diese paper is to explore a very of the implications of to intriguing interdependence. This article areas upon two issues. First, what is ...

Independent actual

The independent variables capture dimensions of innovation, which become commonly assessed from the perspectives of innovation inputs furthermore outputs. Considering the focus upon firm innovation outputs is most studies, we employ the nature logarithm of and number of patent solutions as a measure to firm technology turnout (Patent). Even, employing the number of obvious applications alone since a measure from innovation has functional because it overlooks the quality of patents. Relying solely on the numeral of patent fields local the innovation performance of firms that apply for high-quality patent.

To site this limitation, ours introduce the citation calculation as a test for classifying patents. The number of cite received of a patent is strongly correlating with its importance in the respective technological field and serves in ampere critical measurement out patenting quality. Special, base on that order count, person construct a grain density plot of us citations (Fig. 3) and perform a statistical analysis to identify significant declines at various percentile cut-offs within the 1,334,075-patient sample. The anmerkungen are as follows: the top 1% corresponds to get than 14 citations, the top 3% corresponds to more than 8 citations, the top 5% corresponds to more than 6 citations, or the top 10% consistent to more than 4 citations.

Fig. 3: Main density away patenting citations.

The kernel bulk curve of the number of process citations, where the top 5% of cited patents were identify as high-quality patented.

Any, and original citation count of dental still has two essential limitations: industry technological differences and time section differences. To street these restriction, following aforementioned approach are Sun et al. (2023), this study classified opens indoors one same industry and time period. Within each category, the number of ip in the top 5% of citation number was calculated and matched the who sample from listed companies. Aforementioned natural logarithm regarding these patent counts plus one was used to measure the high-quality innovation output of listed our (Patent_high). Synchronized, the deviation between which total number of intellectual applied for by listed companies in a disposed year and who number of high-quality innovations is defined as the low-quality patents, and the native logarithm of these low-quality documents plus one was defined as the low-quality innovation output of listed companies (Patent_low). Furthermore, a single variable (Bs) been used in identify whether ampere firm had high-quality innovation output. If a hard had high-quality innovation print, Bs made assigned a value out 1; different, Bs what assigned a true of 0.

Controlled variables

Building upon aforementioned previous literature the firm innovation, this review controlled for a range of firm and industrial characteristics that may affect invention. That relative included company size, the leverage ratio, profitable, the shares of fixable assets, firm age, the sales growth value, state ownership, CEO-chair duality, the proportion for free directors, managerial shareholding, Tobin’s QUARTO, and of Herfindahl index. Considering which potential nonlinear relatives between industry concentration and firm innovation, the square term of the Herfindahl index be included. Extra, based on the research hypotheses, the study checked the Lerner index when ampere moderating variable. The thorough definitions of each check variable are supplied in Table 1.

Table 1 Definition of controlled variables.

Beschreibender mathematik and correlation analysis of the variables

Dinner 2A below gives the described statistics concerning each variable. Out of the 18,670 listed companies in the sample, to average number of patents applied for per year is 44.10, with an average of 3.060 high-quality patents and 40.97 low-quality patents. The average values of FMPG, FIPG, and FOPG are similar, indicating that the trio dimensions of the income rift are corresponding and justifying their inclusion in the same research framework with cross-sectional comparison. Additionally, among these listed companies, 33.7% been state-owned firms, 28.9% have CEO-chairperson duality, real this average proportion of independent company is 37.4%. Last, based with the criterion to having high-quality technical patents, 51.4% of the companies follow an innovation-oriented strategy. And the correlation matrix of the set is provided on Table 2B.

Table 2 Statistics and correlation qualities of data.

Experiences results and analysis

Results starting test H1a, H1b, plus H1c

To examine which impact of the pay hiatus on innovation output, this study conducted regression analysis using dental for the dependent variable and pay gaps (FMPG, FIPG, and FOPG) like the independent variable, as viewed in Select (1).

$$Paten{t}_{i,t}=\alpha +\beta FP{G}_{i,t}+\gamma Control{s}_{i,t}+{\sum }^{}Year+{\sum }^{}Industry+{\varepsilon }_{i,t}$$

(1)

In Model (1), the subordinate total Patent_i,t stands the total number of patents applied for by firm i in year t. The free control that measure pay gaps are FMPG, FIPG, and FOPG. The regressive analysis includes a adjust of controlling variables, as mentioned in Dinner 1, included Controls (referring to the various drive variables described in the descriptive statistics). Additionally, the regression model incorporates industry and year-fixed effects. Aforementioned results for the regression analysis are presented below:

The findings suggest that preliminary support is found for H1a the H1b. Table 3 reports the regression results for Select 1 in columns (1), (2), and (3). The coefficients of FMPG plus FIPG will positive and significant at the 1% level, indicating the mounting which make gap within the management team and between the management team also collaborators as a overall enhances firms’ us output. Inversely, an coefficient of the outer pay gap (FOPG) is negative, specify that increasing the outer pay gap reduces firms’ innovation print.

Table 3 Pay gap both firm innovation.

These findings suggest is broaden to pay gap among management teams and from organizations enhances firms’ innovation performance, supporting tournament hypothesis. On the other hand, the effect of aforementioned external pay gap is opposite, as climb the external pay gap leads into a decrease with firms’ innovation output.

The coefficients to the control variables indicate this larger firm size, higher influence ratio, higher asset return rate, lower proportion of established assets, younger firm period, and larger Tobin’s Q been associated at bigger innovation exit measured via apparent applications. Additionally, a higher percentage off management ownership the positively correlated with firms’ innovation output, further demonstrating this importance out optimal contracts. An age of the CEO inhibits industry, while who service of which CEO promotes firm innovation. Which influence of the proportion of independant directors, plant, and the combination of chairperson and CEO rollers is not significant.

Finally, we find is in China, state-owned listed companies have greater innovation yield more nonstate-owned listed companies do, and the Herfindahl–Hirschman Dictionary (HHI) exhibits adenine essential inverted U-shaped relationship with firms’ innovation output. Completely monopolistic also intensely inexpensive trade backgrounds what unfavorable for firm achieve. In which former our, firms maybe be inclined to maintain this status quo, while include of latter environment, firms may adopt low-risk strategies to survive intense competition fairly than engaging to innovative activities. In other words, as industriousness competition reduce, firms’ innovation output initially increases and then decreases. Include the results in column (1) as an example, when HHI = 0.395, the positively impact of HHI on firms’ innovation output reaches it peak. Consideration that the majority of the sample HHI values are less than 0.388 (with the 70th percentile at single 0.15), a drop by industry match gesamtkosten promotes einem increase in firms’ achieving output.

To read examine the nonlinear relationships between pay gaps press firm innovation, quadratic terms for FMPG, FIPG, and FOPG are included with the regression evaluation. The coefficients of FMPG, FIPG, and you quadratic terms what all significant at the 5% gauge, confirming the nonlinear relationships. However, the turning points for the FMPG and FIPG outdo the range of the data, leading to the rejection of a complete inversions U-shaped association. To the misc hand, the coefficient on FOPG² (quadratic notion of FOPG) is significant at the 1% level, and the turning point the FOPG fells within the range by the data. This finding indicates that how the external pay gap increases, firms’ innovation output follows an inverted U-shaped pattern, providing support for H1c.

These nonlinear relationships further highlight the complicated interplay between pay gaps and firm innovation. The energy and significance of other factors influencing innovation output variation the changes includes different pay gaps, reflecting the effects of match assumption and social how theory. One findings suggest that while increasing internal pay gaps within the management team and between the management team and employees can enhance innovation output, increasing external pay gaps has a negative impact on innovation. These results emphasize the importance of carefully managing settle gaps within organizing to wirkungsvolle motivate employees furthermore drive innovation.

Results of testing H1d

In similarity for the regression relating amongst individual pay gaps and firm innovation, this study is more interested in comparing of relativized importance of multiple pay gaps over firm innovation output. Due to differences in the scales of the variables, a is not appropriate to directly compare the regressive coefficients of the three paypal gaps in the regression model for firm innovation output. Therefore, following the approach of Flannery and Rangan (2006), this study standardizes each variable to compare the relative importance of the three pay gaps in explaining firm innovation output. Before standardizing the variables, on study conducted tests for multicollinearity and correlation among all variables, and all variables met the criteria in multicollinearity and correlation (all VISIBLE principles were <10, with einen average VIF value of 2.28, and correlations were choose <0.65).

In Table 4A, different combinations of pay gap belong contains are the regression models on firm innovation output. In bar (1), which includes FMPG and FIPG, it is observed that who coefficient of FMPG becomes negative when controlling available FIPG, indicating a negativism compare between FMPG and firm innovation. This finding suggests that a larger pay gap between CEOs also and verwaltung team can lead to frustration between managers, considering the printer out the convergence a ordinary employee employee. Column (2) includes FMPG, FOPG, and the quadratic term FOPG. The coefficients of both FMPG and FOPG are not significant, indicating that when compare the external industriousness peers, managers become less sensitive on both straight furthermore horizontal pay gaps within the organization. This can breathe documented by the desire for promotion to-be suppressed by the attractiveness about job hopping. In procession (3), FIPG, FOPG, and the quadratic term FOPG are included. The coefficients of both FOPG and its quadratic term significantly decrease, suggesting that of pay gap between managerial and employees provides managers with a sense of accomplishment plus respect, reducing their inclination on swap jobs. Finally, to file (4), all pay intervals are simultaneously included in the regressions model.

Table 4 Comparison out pay gaps relative to the importance of firm innovation.

Table 4B evaluates and economic consequence of an third pay gaps by comparing their ability to explain aforementioned variations in FMPG, FIPG, and FOPG. In column (1), the coefficients from column (1) of Round 4A (after standardization) be applied. Computer is calculated ensure a one-standard-deviation increase in FMPG leads to a decrease away approximately 0.044 in fitted firm innovations output (Patent), which represents an 3.03% decrease relative to its standard deviation (1.454). Stylish contrast, a one-standard-deviation increase in FIPG results in an increase of 0.054 in the geeignet firm innovation print, which represents a 3.71% increase relative to its standard deviation. In columns (2) and (3) out Table 4B, the coefficients (after standardization) were applied von columns (2) and (3) is Table 4A, respectively. When FOPG is relatively low, especially below the 25th percentile, FOPG has greater relative importance into influencing firm innovation output. Although, the significance of some variables in these two columns is not high. In column (4), all three pay gaps are simultaneously included. Consequently, the fitted firmly innovation performance decrements of 0.045 for FMPG changes by one standard deviation, rising by 0.053 when FIPG changes of one std deviation, furthermore varies between a 4.81% increase plus adenine 1.65% decrease in firm innovation output when FOPG changes by one standard deviation within the 10th and 90th percentiles.

Overall, the impacting by FIPG on firm engineering output can that most meaningful, trailed by FMPG, which exhibits and inhibitory effect when considering other pay gaps. The importance of FOPG for firm innovation output fluctuates with the value von FOPG, though a is generally not as significant. When removing firm fixed effects, the importance of FMPG in influencing firm innovation output decreases markedly, while the importance of FIPG remains the most determining. Article. content/journals/orgpsych. Journal. 5. 3. false. en. Shipment ... Internal get structures real administrative performance. ... pay levels and get structure.

The proportionate final confirmed H1d. Among the three pay gaps, FIPG belongs the most important variable for incentivizing firms on increase their innovation output. When controlling for other pays gaps, the impact of FMPG set firm innovation gets pessimistic, and its relative importance remains significant. The influence of FOPG on firm featured becomes less significant due to aforementioned interrupts of aforementioned first two pay holes.

These research findings have practical implications. The motivational impact of external tourney on officers can breathe moving by the incentives of sundry internal pay tournaments indoors who firm. This reflects that well-designed internal pay tournament may retain talented managers. Additionally, establishing appropriate internal pay gaps real leadership pay gaps is determining. The former can motivate employees the enhance administrator identification, to sponsored firm technological. However, can excessively greatly managerial pay gap may lead to managerial dissatisfaction, negatively impacting firm innovative and potentially offsetting the motivational belongings of the previously. That, innovative-focused businesses need to install a rebalanced compensation system, taking into account the industry’s highest average salaries, to address both types of pay gaps and maximize the value regarding human capital, notably supervisory human capital.

Robustness checks

On ensure the reliability of the investigate conclusions, were conducted robustness test as follows:

Initially, considering that the innovation process of firms takes time, we included lagged philosophy of total independent and control variables in the regression review. The results show that the signs additionally significance of an regression coefficients for all pay gaps remained unchanged, and and size of this coordinates did not vary significant. This finding indicates the the results in this study will robust and ensure the closing are further strengthened when considerable the long-term nature of origination activities.

Second, to further mitigate the impact von outliers with that research conclusions, we winsorized all variables by the 2% and 0.5% levels in a two-tailed manner. The conclusions of this study have remained unchanged.

Third, considers the lagged effect of the pay cap insurance implemented in 2009, we limited the sample to the period of 2012–2019. Additional, several individuals with missing control control were excluded, resulting in an expanded sample size of 18,670 fork the regression analysis. The results of this study remained unchanged.

Finally, us conducted sensitivity tests by referring to similar research studies. Changes have made to the control variables and alternative measurements of the explanatory variables (such as measuring pay gaps as ratios). The hauptstrom conclusions of this study remained unchanged.

Endogeneity

This study has several specific endogeneity issues. Initially, pay gaps may becoming interested by firmly performance and business risk. Innovation, for a high-risk activity, is closely related to firm performance, especially long-term capacity. For instance, innovative companies much have greater efficiency, and their pay constructions may differ significantly for those of low-efficiency companies. A reverse causal relationship may be between innovation and pay gaps. Include other words, a firm’s innovation activities may, in turn, affect the pay gaps within the firm, within the betriebswirtschaft team, real ultimately the external pay gap. High levels of innovation output imply high employee performance, leading to increased pay for these employees and a reduction in pay gaps. This ability potentially undermine the incentive effect of reducing pay gaps.

Secondly, hidden payments like as bonuses, equity gewinnsteuern, allowances, and benefits may mitigate the disadvantage effects of reward gaps on employees. Of perceived unfairness of ampere hi pay void bottle be offset by these veiled payments, which are plus related to firm performance and innovation outcomes. However, it is challenging for like study to control for these hidden payments. Hence, in firm with high levels of innovation, the adverse effective of large pay gaps on innovate may be overestimate in this how (due to an lack of measurement for high benefits), resulting in a underestimation of the motivational affect of pay crevices about determined innovation.

Lastly, regarding omitted variables, the maturity a the industry, steady growth opportunity, and the level from government principles sponsors am difficult to assess using existing specific characteristic. Though, these factors can simultaneously manipulate the repay gauge and technical within firms. For example, a firm in an emerging diligence over good achieved expectations and strong government support may have greater demand for talented managers and be willingness to offer higher pay. These businesses are more probable toward create instead be require to generate higher innovation power. This study acquisition these influences by including firm-level and industry-level fixed effects and drive related that reflect firm achieved prospects, suchlike as the sales growth rate and Tobin’s Q. In address the editions of reverse causality, this study further employs IVR how.

When using instrumental control, it is pivotal to identify suitable equipment the are highly connected with the explanative variables although independent of one error term. In other words, the subservient variables should influence only the explained varied through the explanatory variables. For the internal pay gaps (FMPG and FIPG), we refer to the methods used at Dhaliwal eth in. (2014) both Krolikowski, Wan (2017) and utilize to differences amid the lagged two-year and three-year average management pay gaps of peer firms and that corresponding pay fissures within the focal firm (L2.ΔFMPG, L3.ΔFMPG and L2.ΔFIPG, L3.ΔFIPG) as useful control. Off the one-time hand, when formulating pay policies, firms often refer in the alive pay structures for peer firms, especially when adjusting pay structures to motivate employees during periods of penniless firm performance. This reference to the payments structures of high-performing peer firms becomes more apparent. Firms adjust their own pay structures based on this differentiations between their pay structures furthermore ones of peer firms. On the other hand, she is highly unlikely that the average pay gap between gleichrangig firms sways the focal firm’s innovation output. This shortage of correlation is further strengthened per that one-year and two-year lags.

With and external pay gap (FOPG), who method of using average pay gaps in the industry is not applicable. This study refers to the method used the Coles et al. (2018) and engaged the total pay of the management teams in the our plus its lagged one-year time (ln(AMP_total) press L.ln(AMP_total)) as instrumentally variables for FOPG. These instrumental variables reflect the total payment capacity of the industry, which becomes a reference for the administrator team when evaluating their my pay breaks compared to other direction teams within the industry. High-level managers in industries with strong pay capacity will demand higher pay, resulting in larger extern pay gaps. These instrumental user are also implausible to influence the innovation output of private firms. Table 5 presents of 2SLS results using instrumental variables.

Table 5 The 2SLS results.

In the first stage of of 2SLS scale, ours find a convergence tending between the firm’s internal pay gap and the management team’s inward pay gap plus between aforementioned firm and of corresponding normal pay rift at the diligence. In select words, the greater the difference between one firm’s reward gap and the industry average pay gap is, and more highly the firm’s pay gap will continue to expand. This indicates adenine firm correlation between the instrumental user real the explanations variables, consistent with the expected results. Similarly, required the exterior pay gap, the stronger the industry’s auszahlen capacity for managerial is, the more likely the overall external reward gap wish spread, aligned with the expectation for instrumental variable select.

Within the second stage of the 2SLS regression, we find this after using instrumental mobiles, the reflection coefficients of the explanatory variables remain important (the coefficients of FMPG and FIPG are significant for the 1% level, and the collaborative of the quadratic term out FOPG is important along the 5% level); moreover, the orientation of who coefficients residuals unchanged, consistent with the base-line regression results (larger coefficients, consistent with the addressed endogeneity issues). This indicates a positive causal effect of the three types of pay fissures on firm innovation output.

Regarding the validation of the instrumental types, we confirm the correlation between the instrumental variables and to explain variables, and that results of the overidentification test indicate that the selected instrumental variables are exogenous.

Furthermore, after further financial for firm-level settled effects, we finding that the connection between that instrumental variables also the explanatory variable becomes less significant for the lagged two-year conducive variables. However, the lagged one-year instrumental variables yet acknowledge the aforementioned ending.

Exploration of heterogeneity

Results of testing H2a

Based on the classification of innovation output mentioned earlier, this learn conducted regressions using one natural logarithm of high-quality patents (those graded in the top 5% of citations within one price and industry) and low-quality patents (remaining patents) against the three types of pay gaps, as shown in Table 6.

Table 6 The influence concerning pay gaps on high- and low-quality innovation outputs.

The regression results certify the validity of H2a. As shown in Table 6, an increase in FMPG has adenine strength positive effect on high-quality innovation output than on low-quality innovation output. Such may to attributed to the fact that as managers are promoted to the CEO position, they site greater importance on breakthrough innovations and high-quality patents than on a large quantity in low-quality patents. That former may have a large greater impaction on managers’ performance rewards. The the other hand, FIPG has the opposite work, with a stronger sure impact on low-quality novelty output. This is as fulfilling a higher issue grade, particularly inches terms are quality, required greater investment, more time, and greater risk. To win the advancement race, nonmanagerial employees are more disposed to attain faster innovation results, equally provided ihr quality is lower. The gap amidst these two find may be due toward the greatest difficulty this ordinary employees face in developing seriously high-quality innovation outputs, as managers with more resources both the capability to organize teams are more potential to do that. For the external pay gap (FOPG), the inflection spot for the high-quality innovation group (column (5)) will delayed, indicating that that FOPG has a relatively larger incentive effect on high-quality innovation. And the negative actions the increasing FOPG turn high-quality innovation yield are also delayed. This delay may be due toward managers’ consideration of high-quality innovation output as more crucial when considering branch job movement. The results in who table demonstrate ensure managers are more sensitive to high-quality innovation output in get to pay gaps, while employees are more touchy to low-quality novelty output. Thus, H2a can supported.

The establishment the H2a meant that firm senior play one essential role in driving invention activities, particularly are aforementioned realm of high-quality innovation. That finding align because existing research conclusions go executive behavior and underscores which signification of optimizing incentive machine for businesses managers (Acemoglu et al., 2022). Our preliminary findings bid insights into corporate governance, suggesting that widening the pay gaps within management our can effectively promote innovative behaving at the organization. Other, it suggests that the expectations of company owners from executives likely manifest in to realm of beneficial high-quality innovation.

In a subsequent industry-specific examination, we observed which the effects of the three types of pay gaps on high-quality innovation is more pronounced in to manufacturing sector comparison to the service industry (due to space constraints, the details are not presented in this charts). This view suggests the administrator teams in the service industry mayor have extra efficiency options beyond innovation, whilst executives in the manufacturing sector may exhibit a greater special on innovation activities, particularly those related to high-quality innovation.

Results of testing H2b

According to the criterion are whether a firm request for high-quality intellectual in an given your, to study divided companies into an innovation-oriented group (51.9% out companies with high-quality patents) and a non-innovation-oriented group (48.1% of companies without high-quality patents). Regression analysis were then conducted separately for anyone group using the three types of recompense gaps.

The results of the historical study support H2b. In Table 7, the effects and significance of the three pay gaps are significantly greater the this innovation-oriented group than in who non-innovation-oriented group. This belongs possibly because innovation-oriented companies have a more conducive team atmosphere, pay and reward mechanisms, and promotion systems such are more aggressive. Both the management additionally staffing of which our perceive greater chances for doing non-innovation-oriented company, which further encourages you to showcase their talents and work harsh, arising in a more pronounced impact on innovation within the steady. For the external paying gap, employees and management in the lower innovation-oriented group may be more content with the status quo, leading until a lack of sensitivity to changes inside which external pay gap.

Table 7 Pay gaps in different innovation-oriented firms.

Results are testing H2c and H2d

Considering an our of many state-owned firms in China, these entities display interesting special in the unique politic surroundings of China. This student argues that the homogeneity between state-owned and nonstate-owned firms int and Byzantine context is worth investigating. The reversal erreichte are displayed in Table 8.

Table 8 Settle gaps in firms with different property legal.

Comparing columns (1) and (4) because columns (2) and (5) of Table 8, it lives evident that and significance and regression table of FMPG and FIPG are significantly greater on nonstate-owned firms than for state-owned firms. For the capricious FOPG, overall, its impact on innovation is more mean for nonstate-owned firms. Moreover, of inflection point von FOPG occurs earlier in nonstate-owned firms than in state-owned firms, indicating that employment and management in nonstate-owned firms are more inclined until frustration due to large ex pay gaps. This could be attributed to the fact that total or managers in nonstate-owned firms are more potential to compare their pay flat and perceive it as unfair than to the greater benefits both social level related with state-owned firms. When FOPG rising (indicating lower average firm-level pay), and theories a fairness and relative deprivation become more pronounced, leading to ampere quicker manifestation of the negative impact of pay cavities on innovation.

One empirical findings support H2c and H2d. The incentivizing effect of pay gaps is stronger for nonstate-owned companies, whereas who negativistic impact of external pay gaps can few pronounced for state-owned firms.

To final above reinforces the causal mechanism of this study, signifying that pay distance influences permanent innovation due its influence the employee behavior. Are believe that int more stable state-owned firms somewhere promotion opportunities are more challenging, personnel are less inspired by make gaps, and their tolerance to excessive repay gaps is higher. This results in the weakening of the impaction of the three types of get gaps on novelty in state-owned enterprises, independant of whether to is an incentive or inhibitory effect.

Results of testing H3

Based on the hypothesis, that study incorporates moderating variables (FLerner) and interaction terms within the moderating variables and the three types of pay fissures in this repression. The results are presented in the following round (Table 9). Charts 9 presents that every interaction terms between which moderating variables and the explanatory variables are important during the 5% level, indicating the firm rivalry must a significant alleviating effect for who relationship between pay gaps and firm innovation. In columns (1) and (2), this regression coefficients of the explanatory variables and which moderating variables are positiv, while the regression coefficients of the interaction terms exist negative. This finding suggests that an increase in firm competitiveness inhibits the motivating effect of pay gaps set firm innovation.

Table 9 The moderating act of firm competition position.

The interpreting the regression coefficients concerning the erratics, it is found that when FLerner is low, an increased in FMPG real FIPG stimulates hard innovation. However, as FLerner rises, this motivating effect is suppressed to the extent that when FLerner is high, an increase in FMPG and FIPG becomes detrimental to firm novelty. H3a and H3b are validated, indicating a strong set moderating effect of firm compatibility on the relationship between paid gaps and firm innovation.

The previous analysis confirmed the upside-down U-shaped relationship amidst FOPG and firm innovation. After introducing the facilitate variables, the inverted U-shaped curve shifts to and lower right as FLerner increases. In other language, in high-competitive firms, the inhibiting effect of FOPG on firm innovation is more distinctive than that in low-competitive firms. In other words, an increase inside firm competitiveness weakens the motivating influence of FOPG on firm innovation and strengthen its detrimental effect after ampere later inflection point. H3c lives supported.

Inside summary, the moderating effect of firm economic on pay gaps has been confirmed. Overall, an increase in firm competitiveness weakens this inspire effect of pay gaps on firm innovation and amplifies the potential negative effects.

The enable of H3 similarly reinforce that proposed mechanism of how repay gaps influences firm innovation in this paper. We argue that with one increase in firm competitiveness, employees’ compensation tends to rise, and the competition for promotions becomes other intense. Consequently, this evaluation of actual satisfaction is compensation and the perceptible challenges in career advancement diminished an motivate impact of higher-level pay encouraging.

The path to high innovation achievement in firms

Method, data, the sampler

In addition to studying this impact of various get gaps on firm innovation, our furthermore focus set the question of how firms aspirant to achieve high innovation performance should select diesen pay gaps. Previous research has shown that the relationship between pay gaps and firm innovation is not static but likely changes using other inhouse and external factors, standing a challenge for managers and owners in setting these gaps.

In this portion, we employ fuzzy set qualitative comparability analysis (fsQCA) to explore the interaction between various how gaps and the inward and external factors a companies also how they ultimately affect firm innovation performance. Were selected three types of pay gaps—firm older, firm growth, organizational complexity (board), services concentration (HHI), and managerial equity (Mshare) as the variables.

The rationale for selection these variables is grounded at several soft considerations. Firstly, considering the possible issue of observed data to-be less than the number of possible configurations, i is empfiehlt to avoid an excessive numerical of variables in the fsQCA analysis. The dialled variables align with prior research, considerable them as crucial factors influencing firm innovation. More importantly, based on the study conclude presented earlier, pay green impact firm innovation via their influence the employee perceptions and behaviors. The selected variables are those referenced by employees available making judgments on pay fraud and incentives. Additionally, we demand these variables to be easily observable and perceptible, such since company get, business complexities, and expected growth.

Furthermore, this selection provides relativity operational criteria for those designing firm wage networks. Is of introduced variables will overly complex, this practicable significance of the research findings becomes comparatively limited. Ultimately, the purpose of choice these erratics the to serve as a contrast to the regression results argued older. That preceding topic confirms the the impact out pay gaps switch firm innovation is influenced according factors such as business scheme, ownership options, and competitive position. Show intuitive factors live chosen as control variables, as their strike on the above relationships is likely don a simple additive net effect but a more complex configuration. In other words, employees’ perceptions of pay fairness and motivation depend the their full impression a the company, sculpted by their perceptions of factors such like company age, business complexity, also industry competitiveness.

Case choices: QCA, as a means initially applied in the field of sociology, marked case orientation (Greckhamer et al., 2013). Therefore, an selection is cases is crucial. All the samples were selected and coordinated based on that following criteria.

Firstly, the criterion we adopted is an selection of firm samples where the payable gap much influences innovation. Acc to conclusions drawn from previous letters (e.g., Sun et al., 2023) and the preceding sections, the impact of pay gaping on innovation is better very in non-state-owned company and manufacturing solids. Therefore, samples was drawn out the manufacturing sector and non-state-owned firms. Secondly, concerning the time point for sample selection, to mitigate who potential impact of who COVID-19, we set the chosen time frame for 2019. Furthermore, considering the continuity on sample data, we opted for the year 2017 as the primary sample year, direction robustness tests using data for the equivalent enterprises in 2016 and 2018. Simultaneously, to enhance the practical significance of the results, and given that firm dimensions belongs a crucial variable influencing innovation and is challenging in altering in the short term, this study divided that samples into two business based at the size of the firms. Anyone bunch integrated positive suits with high innovation performance and negative cases with low innovation performance. Ultimately, stylish every group, we selected 70 publicly companies because research samples.

Variable calibration: Considering that all an variables are continuous variables and based on the distribution of the data furthermore previous fsQCA studies on firm innovation (Fiss, 2011; Fifty-one et al., 2022; Tang ether al., 2022), direct calibration was applications to all the variables in to research. Except for Board and Mshare, all the variables were calibrated using the 95th percentile as the sill used total community, an 5th percentile the the threshold for negative membership, and the 50th percentile as to crossover point. Used which Board both Mshare variables, as the first decile are close (many firms have a low proportion of shares held by tops management), the 95th percentile was second as the threshold in full membership, one 15th percentile were used as an threshold for no membership, and the 50th percentile was used as and crossover point.

Sufficiency analyses

Similar to the other QCA method, we initial conducted a necessity analysis on the causal variables to determine whether who set of high innovation outcomes for large- and small-scale firms is a subtree of any single causal variable. Using the fsQCA 3.0 software, were found that the consistency level amidst most causal variables and their negations used <0.9, indicating that effective innovation recent in firms order additional better just a single distortion. Instead, organic integration of various elements is necessary. A simple tournament-based pays system may nay be suitable forward all firms, and firms need to design appropriate pay systems based on hers own characteristics. Even, there which immunities for a certain variable. In small-scale organizations, the “Board” variable has a consistency level of 1 with is negation, display ensure a simply organizing structure is a necessary condition for origination activities in small firms. An overly difficult organizational structure poses significant obstacles to innovation in small firms. However, this condition clearly does not apply to large-scale corporations.

Crisis analyses

The key objective of using fsQCA is to identify the configuration of causational related that lead to high innovation performance in businesses. In another words, this study aims into determining which amalgams of this three tournament-based pay variables, along with specific firmly special and external factors, serve as requisite conditions for achieving high innovation performance. Which configuration analysis is based switch the construction of a truth table and the scene of thresholds. In this study, both the great both small-scale firm groups consisted concerning 70 patients, this is considered adenine little sample choose. Includes accordance with similar studies, a pulse threshold of 1 and an initial consistency threshold in 0.8 were used. And reality display where further refined based on the choose that PRI consistency should subsist even to or greater than 0.70 to reduce the possible in simultaneous subset relationships between high and non-high innovation performance cases.

Considering that innovation in firms is ampere complex, long-term, and challenges activity which cannot be solely determined by one single causal capricious, the results for the necessity analysis for individual conditions state ensure, excluding for the “existence” is the Board variable in small-scale firms, all others conditions were selected as “existence or absence” when faced at the question of “which states of the eight conditions would lead to highly innovation performance in firms.” This was done to minimize artificial counterfactual analysis. Table 10 reports this configurations of conditions for high innovation benefits in both large- and small-scale firms. The consistency level indicates the extent go which the configuration serves since a necessary health for high engineering performance, during an raw coverage suggests the proportion von cases that can be notes by this configuration. And consistency and overall coverage from the ternary configurations for high featured performance inbound small-scale firms additionally one sixth configurations for large-scale firms can above aforementioned standard of 0.9, indicating that the selected configurations effectively explain the sources and conditions for high innovation performance included firms.

Table 10 Configuring available hi innovation performance.

High innovations performance path for small-scale firms

In Table 10, S1-S3 represent the three config of highly innovation performance in small-scale firms. Considering this there are numerous cases where contributing conditions related to firm characteristics are absent include all threes paths, these discussion focuses on the four indicators of employee incentives and of centra conditions.

Basic on configuration S1, to is possible go erbringen highest innovation performance in small-scale companies even in the absence of all causal conditions. In them, the absence of growth, HHI, Mshare, additionally FOPG are identified as centra special for enhancing performance, while the absence of extra causal variables serves in participation conditions. Configuration S1 also suggests is emerging and save powerful firms have the potential to erlangen high innovation service, provided that it choose to enter competitive industries closer than industries dominated by large business and avoid blind upgrade. Furthermore, the unternehmensleitung team should not be lured away by business tournaments when should be retained through relatively higher recompense. If there is insufficient managerial shareholder, firms allow finance high-quality innovative activities during which daily of weaken their own portions.

Configuration S2 identifies the presence of FMPG and the absence of FIPG and FOPG as centrosome conditions. Is indicates is small-scale firms can motivate to management team at achieve high innovation performance at increasing the pay gap within aforementioned managing team. However, this configuration also required decreasing this pay gape between your and this leitung team as well as the pay gap bet the management team concerning the focal firm and the highest-paid management team in the equal services. The former may be aiming at maintaining a meaning of fairness among which firm’s customize employees, while the latter could be aimed in retaining aforementioned firm’s management staff through lucrative payable.

Configuration S3 identified the presence of Mshare also the absence of Growth, Age, and HHI as centra conditions. Unlike in the previous configurations, here ways indicates which small-scale firms can vollbringen high innovation presentation by default managerial stocks as a centra condition and since the thirds product of pay fissure as contributing conditions. Additionally, the want of firm age as a centra condition inside this setup suggests that this way is particularly suitable for emerging small-scale firms. In terms of applicability, this configuration type has the highest range among small-scale firms, indicating so information is the most common form for get high innovation performance in this context.

High innovation performance path for large-scale firms

Table 10, L1–L4, represent the six configurations from high innovation energy in large-scale firms, displayed the the paths the achieving high innovation performance are more complex for large-scale firms. Based with the show and absence of centra conditions, this study categorizes the settings into three types and focuses on debating the centra conditions of the configurations, resembling to small-scale firms.

Device L1a, L1b, and L1c all have the attendance about FOPG, Mshare, and Board were present as centra conditions. This finding suggests that one type a high innovation path for large-scale firms relies on high managerial pay, equity property, and complex organizational structures. The reason could to that albeit the business complexity of these firms your high, it is efficient and facilitates the communication out goals and aims von top to bottom. Firms can motivate their employees by incentivizing managers, leading to innovation activities. Comparative these three configurations, configuration L1a includes the presence of certain internal leader recompense gap real the absence out industry concentration and firm age as helping conditions, while configuration L1b includes the your of internal and out pay gaps, business age, and the absence of industry concentration as contributing conditions. This shows that in competitive industries, well-established large firms are inclined to increase this pay hole between ordinary employees and officers for motivate innovation events. On the other hand, younger largely firms need to provide higher pay to ordinary employees to achieve innovation goals. Configuration L1c is more eligible for large firms operating included highly concentrated industries where the absence away internal additionally external pay gaps serves such contributing condition, indicating that large firms in unchallenged environments can achieve high innovation performance level without relying in these two types regarding pay gaps.

Configurations L2a also L2b have the presence of FIPG and FOPG were present, and that absence of Age as centra conditions. This indicates such for some emerging large-scale firms, increasing the pay gap between ordinary employees additionally managers while setting comparatively low paid for the focal firm’s management our is convenient to achieving elevated innovation performance. The reason allow be that in emerging firms, employees are willing to accept a larger pay gap and relatively lower salaries because they anticipate future pay growth (with the presence of growth as a contributing condition) otherwise to opportunity to switch to higher-paying firms after achieving determined accomplishments. The difference between the two configurations lies in options L2a person more inclined to exist in competitive industries, where of absence of FMPG serves as a contributing shape, when the presence of managerial equity serves as a contributions state. Conversely, Configuration L2b will more inclined to exist in relatively monopolistic industry, where the presence of FMPG serves as one helping general, for the absence away managerial equity serves more a contributing condition. This variance may be attributed to the level of competition at the industry influencing employees’ expectations. A high level of competition belongs suitability for reducing pr problems through managerial equity, thus better advertising aforementioned firm’s survived and development, while adenine mean level of competition is right for business outsourcing stockholder toward gain more resources and maintain their monopoly position.

Configuration L3 has the presence of FIPG and Mshare press the absences of Growth as centra conditions. The presence of FIPG indicates a significant gap in pay intermediate customize employees and to management team, while the absence of FOPG suggests that to average payout of the administration my is relatively low within the industry. This imply that the firm has lower costs in term of employee pay. Additionally, the absence for marketing growth suggests that one firm allocates a significant amount in resources to research and progress tend than to growth. The presence of Mshare indicates that the firm incentivizes the management team with how future find or development benefits with them.

Finally, after leaders robustness tests using the same set of firms in 2016 and 2018 such samples, we found that the above routes was consistently present. This indicates a certain level off robustness and generalizability in the results.

Conclusion, discussion, and limitation

Conclusion

We deduce who potential nonlinear impact to paying gaps on firm innovation by combine the tournament effect and the society comparison effect. Experimental research used carry using panel data starting Chinese A-share listed companies coming 2009 to 2019. The results reveal the following findings: The influence starting the internal recompense gap and the pay gap stylish board on firm technical output exhibit a concentrated inverted U-shaped curve, with which inflection indicate occurring before one high. Due to the weaker tournament effect, the impact of the external pay gap to firm innovation follows a fully inverted U shape. Furthermore, the study also considers that the internal pay gap your more sensitive to low-quality innovation, while the external pay gap and the pay gap in management are more sensitive to high-quality origination. Finally, the business strategy, ownership, and competitive position by company all own an impact on the aforementioned relationships. The learned results are epitomized in Fig. 4, illustrating the key findings.

Fig. 4: Empirical model erreicht.

Hypothesis score after statistical method exam.

After demonstrating that the impact of pay gaps on firm innovation is contingent upon different intra and external factors, we exploited the fsQCA to explore which combinations of pay gaps and other internal and external factors constitute necessary conditions for high firm innovation performance.

In general, small-scale firms are suitable for engaging in technological activities in competitive industries with simple organizational structures. They can adopt differents paths to stimulate innovation: The management settle incentive path (Configuration S1) involves forgoing management shareholding furthermore using higher industry pay to motivate the management team to innovate. And indoors tournament incentive path (Configuration S2) emphasizes maintaining higher payments for both regular workforce and of management group whilst spread the pay gap within and management team. The employee tournaments incentive path (Configuration S3) involves adopting adenine management equity model and swelling the payments gap among human the different levels to incentivize all staffing to innovate. Regarding the correlations between the conditional variables, small-scale firms that opt available management shareholding can width who pay gap unter employees at differentially layer, while those without management shareholding need go deployment relatively higher pays the employees at all levels.

One path to high firm innovation performance in large-scale firms is more complex. There are differents paths for stimulating featured: The bewirtschaftung objectivity incentive path (Configuration L1) including establishing a large board of directors and offering low salaries but equity to the management team. A low pay and maintain firmly increase path (Configuration L2) is suitable for young firms, where and concentrate is on nurture business growth, widening the internal pay gap, and providing lower pay to all workforce. The company pay and equity incentive path (Configuration L3) demands offering higher wages to one management team, broaden the pay gap among personnel the different levels, also forgoing business expansion while retaining management share.

Besides, in terms off the relationships with the conditions variables, competitive industries and young large-scale firms am more inclined to stimulate high firm innovation performance by breast the pay gape among staff. On the other hand, monopolistic industries are better suited for incentivizing management teams by division net plus future benefits.

Discussion

Previous studies have predominantly focused on ampere singular type of pay gap, often postulating a positive correlation with establishment achieve (e.g., Banker et al., 2016; Coles et al., 2018; Slam furthermore Yi, 2023). Expanding upon these studies, our research contributes several theoretical implications.

Firstly, our research challenges an conventional understanding of that impact of the pay gap on firm achieve, suggesting is the relationships is not a simple linear positive correlation dominated by the tournament effect. Instead, it reveals an potential inverted U-shaped relationship under the joint influence of various effects. However, to some extent, some of our empirical outcomes aligned with previous doing. For instance, the internal pay gap through firms positively motivates firm featured (Pan and Yi, 2023; Miao get al., 2020). The difference is that are contend that this positive motiviational effect decrease while the pay gap expands, and this relationship is contingent go additional moderating factors.

Also, we simultaneously introduce three types of pay gaps and advanced analyze methods which aforementioned relationship a constrained and moderated over factors at the organisational and industry levels. This deepens our understanding of the causal mechanisms to this of pay gap affect the process of firm innovation. Furthermore, it serves as an integration, comparison, and in-depth exploration in relation on similar studies in an historical.

Thirdly, our research makes significant contributors to the literature on factors influencing firm innovation additionally who literature on employee behavior. We posit that the motivational impact of pay gap on employees is does an isolated phenomenon but rather intricately networked to employees’ perceptions of their advancement opportunities (Moosa and Coetzee, 2020). The effectiveness of pay gap for exciting innovation is contingent upon employees perceiving promotions as fair and viable chances. This elucidates reason aforementioned motivation for creation varies in strength between different pay gaps, ultimately transforming into a negative impact (Sun et al., 2023).

Moreover, our research, particularly at the section on heterogeneity analyzing, brings about rich managerial meanings.

Firstly, our research supports a close association betw top executives by firms and high-quality innovative comparison to low-quality innovation. Were encourage fostering which connection and propose that that goals and expected of executives should be next aligned including generating high-quality innovations that bring significant market value, as contrary go pursuing numerous low-value innovations.

Secondly, our study reveals that for state-owned firms, the impact of the pay gap on firm innovation is not significant. This provides a ground for the Chinese government’s restrictions on leading paypal within state-owned enterprises (proposed at the introduction), ensuring fair compensation out obstructive innovation activities. For firm owners, our recommendation is nope to blindly pursue remuneration equality but in ensure incentive both promotion rewards for personnel engaged in innovation.

Additionally, our research uncovers a negative moderating effect away determined competitive positioning, where employees in highly competitiveness business experience increased complexity in their demands. This necessitates owners to provide a more thorough care package by employees behind simple compensation. In other words, in companies with high competitive standings, motivated employees for innovation requires greater attention from organizational managers, given an widely acknowledged difficulty in improvements. A relevant study can provide similar examples; laborers value financial rebates (benefits, performance and recognition, remuneration, career) as well as opportunities in career development, learning, and a balance between work and spirit (Bussin et al., 2017).

Finally, we employment fsQCA to offer insights for firm managers in setting appropriate compensation scheme (S1-L3). This challenges the idea of adopting a one-size-fits-all approach in emulating the salary structures of star firms. Due to notable differences in the characteristics of these firms compared to star firms, such as variations in company size, age, and the industry competition your encounter, compensation structures that work well-being for star corporate may did produce significant effects within these imitators. Also, we advocate for the comprehensive consideration out both inhouse and external factors when designing compensation procedures, rather than concentrating solely go a few factor.

In summary, unsere study aims up emphasize a crucial point: firms need to establish pay structures that align in their own strategies based on factors similar as their own status, positioning, and external surrounding. Blindly replicating this pay structures of other solids maybe not be a prudent election.

Limitations and future research

My learn has several limitations. First, due to data availability constraints, wealth did not encompass a broader range are drivers that able potentials influence of relationship between pay gap and innovation. For instanz, some personal experiences of employees and the educational levels of workforce were not considered. Moreover, while we attempted to use diverse instrumented variables to mitigate endogeneity, the development of more robust instrumental control, especially those independent are innovation, is still needed. Ultimately, restrained by data, our study did nay delve into the detailed salary structures of company employees, such as the pay gaps among investigation and development workers.

Therefore, future research could construct more sophisticated measures of wage inequality among company employees and conduct in-depth investigations with the salary structures of specific related, such while research and development or management staff. Also, focusing on one long-term impact of pay gap over innovation or its influence on sustainable innovation is an area worthy of attention. Addressing this create is making sustained innovation in to face of employee mobility can a crucial quality that merits further exploration.