earticle

영어

Since the Korean currency crisis of 1997, Korean firms have followed the compensation system used in the U.S. With this shift, pay for executives has risen sharply and the pay multiple has increased. We investigate the effect of this increased pay multiple on the overall operating and stock performance of Korean firms. Our data comprise 15,438 firm-year observations in 1,745 non-financial firms listed on two Korean stock markets from 2004 to 2016. Researchers in the field of human resource management find that relative pay has greater relevance than absolute pay in shaping the behaviors or attitudes of lower-level employees. Accordingly, we conjecture that enlarged pay multiples have a negative effect on Korean firms, as Korea has a relatively more egalitarian culture and a less elaborate evaluation system. In addition, relative deprivation theory posits that employees feel deprived when they perceive that their executives are overpaid. Employees may accept that high pay for an executive is deserved if that executive has high managerial ability. However, the employees may feel that executives with low managerial ability are paid too much. We therefore estimate the managerial ability of executives by adopting the method suggested by Demerjian, Lev, and McVay (2012), and we divide our sample firms into high and low managerial ability groups. We hypothesize that the effects of pay multiple on firm performance differ according to whether the firms have high or low managerial ability. Our empirical results are as follows. First, pay multiple negatively affects the overall operating and stock performance of most Korean firms. This finding implies that most employees think their executives’ pay is unjustifiably high, and it should be reduced. This sentiment seems to support relative deprivation theory. Second, the negative impact of pay multiple occurs only in the low managerial ability group. In the high managerial ability group, increased pay multiples have a positive effect. This finding indicates that employees in firms with low-ability managers feel deprived because of their executives’ excessive pay, whereas employees in firms with high-ability managers accept that their executives’ increased levels of pay are deserved. Third, the squared terms of pay multiple have negative coefficients. In other words, the negative effect of pay multiple becomes greater as pay multiple increases in the low managerial ability group. Meanwhile, this result indicates that the positive effect of pay multiple changes negatively as pay multiple increases in the high managerial ability group. In quintile analyses, we confirm that this non-linearity applies for both high and low managerial ability groups. In general, the negative effect becomes greater for each higher quintile of pay multiple in the low managerial ability group. We find that there is an inverted U-shaped relationship between pay multiple and firm performance in the high managerial ability group, which implies the existence of the optimal pay multiple. Fourth, we use an instrumental variable to check for potential endogeneity due to reverse causality between pay multiples and firm performances. Our empirical results are robustly confirmed. Finally, we further analyze various sub-samples of manufacturing and non-manufacturing firms, chaebol and non-chaebol firms, and Korea Stock Exchange (KSE) as compared to KOSDAQ firms. We obtain consistent results for all of the subsamples. In summary, we show that pay multiple has a negative effect on firm performance. However, this negative effect only occurs in low managerial ability firms, where the negative impact becomes more significant as the pay multiple grows larger. These findings are consistent with relative deprivation theory. This paper examines executive-employee pay multiples, rather than pay gaps among executives or employees. By linking the pay multiple to firm performance, we show that it is important to adopt a pay structure that includes both executives and employees. Furthermore, we contribute meaningful evidence concerning relative deprivation theory by analyzing how managerial ability is related to the relationship between pay multiple and firm performance. Our findings indicate that to enhance firm performance, executive pay structures need to reflect managerial ability.

한국어

본 연구는 2004년부터 2016년까지 유가증권시장과 코스닥에 상장된 기업을 대상으로 경영진과 종업원 간 보상격차가 기업성과에 미치는 영향을 검정한다. 나아가 경영진 능력을 추정하여 보상격차가 정당한지를 살펴본다. 실증분석결과는 다음과 같다. 첫째, 경영진과 종업원 간 보상격차는 기업성과에 부정적 영향을 미쳤다. 둘째, 이 부정적 영향은 경영진 능력이 낮은 그룹에서만 나타났다. 셋째, 보상격차가 커질수록 기업성과에 미치는 음(-)의 영향이 더 커졌다. 특히, 저능력 그룹에서 부정적 영향이 더욱 가파르게 커졌다. 넷째, 도구변수를 이용하여 역 인과관계에 따른 내생성 문제를 고려하여도 본 연구의 실증결과는 강건하였다. 끝으로, 제조업과 비제조업, 재벌기업과 비재벌기업, 유가증권시장 기업과 코스닥 기업 등 하위표본별 분석에서도 일관된 결과를 얻었다. 본 연구결과는 한국의 경우 경영진과 종업원 간 보상격차가 기업성과에 미치는 영향은 상대적 박탈 이론에 의해 설명되며, 경영진 보상을 책정할 때 높은 기업성과를 위해 고려해야할 많은 시사점을 제시한다.