Employee directors and pay equity: evidence from China

This study investigates the impact of employee directors on the executive–employee pay disparity in China. The results indicate that firms with employee directors tend to have narrower internal pay gaps, with the disparity narrowing further as both the number and proportion of employee directors increase. This effect stems from a combination of reduced executive compensation and higher wages for rank-and-file employees, driven by enhanced employee salary bargaining power and strengthened monitoring of executive compensation. The impact is particularly pronounced when employee directors are older or more highly educated, and in firms that are labor-intensive, located in regions with strong legal institutions, or experiencing significant population aging. Moreover, we find that property rights, union strength, and industry competitiveness also serve as important moderating factors. Additionally, the presence of employee directors is positively associated with higher total factor productivity.