WHY HAS TOP EXECUTIVE COMPENSATION INCREASED SO MUCH IN CHINA: A EXPLANATION OF PEER-EFFECTS

Top executive compensation can be affected significantly by peer group pay. This paper investigates the impact of peer effects on the change in top executive compensation based on evidence from China. Empirical results show that if the top three executives' compensation was lower than the peer group median level in year t  -  1, the percentage change in the top three executives compensation in year t would be higher by 0.225%, and that the absolute level of pay would increase by 51 000 yuan. Furthermore, better performance, faster growth and state ownership increase the likelihood of peer effects, while corporate governance variables do not. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Asia Pty Ltd