Location and the Design of Executives’ Compensation in China

This article tries to find the effect of a firm’s location on executives’ compensation in China, especially for non-state-owned listed enterprises. Based on the data from 2013-2017, I find that there are significant gaps between executives’ remuneration of companies in smaller cities and that of companies in mega cities. Companies in mega cities pay 33.5% more in equity and 28.4% more in cash to their top managers. After controlling for the cost of living, the gaps are narrowed. Executives in smaller cities earn only 3.7% less in equity compensation and 3.8% more in cash compensation. I also find that top managers in firms in smaller cities have lower pay-for-performance sensitivity. However, the influence of firms’ location on equity-compensation-for-performance sensitivity is insignificant. This result may have some implications for the shareholders of companies in smaller cities as they can increase the proportion of equity-based compensation to connect their interests and executives’ interests better