Does CEO pay capping regulation work for Chinese state owned enterprises

Currently, there is an ongoing debate in the literature on whether CEO compensation should be regulated. Empirical studies based on western countries provide conflicting evidence whilst little research has been done in emerging economies. This paper builds on evidence in this area by providing evidence on the effectiveness of the 2009 capping regulation issued by the Chinese government really works. Specifically, it investigates if the 2009 Regulation decreased the level and growth rate of CEO compensation in Chinese SOEs. It also tests if the pay-performance relation changed after the 2009 Regulation. Statistical results show that whilst the absolute level of CEO cash compensation in Chinese SOEs did not decrease, the relative CEO-worker pay ratio dropped significantly following the 2009 Regulation compared to non-SOEs. However, there is no evidence that the 2009 Regulation changed the pay-performance relation in Chinese SOEs. Overall, results based on Chinese SOEs support the notion that political interventions do have some effects on restraining pay disparity in China.