Bottom－Up Corporate Governance and Pay Disparities within Top Management Teams

[Purpose] This study examined the effect of internal governance within executive teams on pay disparity within top management teams. Additionally, this study aimed to analyze whether the results are more pronounced as the decision horizon of non－CEO executives extends further. [Methodology] We used a sample of 3,899 Chinese A－share listed companies from 2011 to 2022 (23,750 firm－year observations) to conduct a panel regression analysis. [Findings] Internal governance within executive teams significantly reduced pay disparities between the CEO and other executives. This constraining effect was more pronounced when top management team (TMT) executives’ decision horizons were more prolonged. Further analysis indicates that internal governance within the executive team specifically reduced CEO compensation without increasing the compensation of non－CEO executives. [Implications] This study provides empirical evidence on the relationship between internal governance and pay disparity within top management teams, demonstrating that the internal governance structure formed by the executive team reduces the pay gap between the CEO and other executives. These findings contribute to a deeper understanding of the mechanisms underlying executive pay disparity