Digital Transformation and Within-Firm Pay Gap: Evidence from China

This paper examines the effect of digital transformation on pay gap between executives and employees using a large panel of listed companies in China spanning 2013-2020. Baseline results show that digital transformation of enterprises can largely increase the pay gap. Mechanism tests show that the digital transformation of enterprises increases the income of executives and ordinary employees, and the income of executives is increasing faster than ordinary employees. Furthermore, employee's skill level is an important influence mechanism of the effect of digital transformation on within pay gap. Heterogeneity analysis finds that this effect is more pronounced in firms with fierce industry competition, traditional firms, large firms, and firms with lower shareholdings of executives. Lastly, we find that the pay gap induced by digital transformation enhances corporate performance. Overall, this study complements the determinants of compensation structure from a new perspective of digital transformation.

Automated summary

This paper examines the impact of digital transformation on the pay gap between executives and employees in listed companies in China. The findings suggest that digital transformation significantly increases the pay gap. Mechanism tests show that digital transformation leads to increased income for both executives and ordinary employees, but executives experience faster income growth. Additionally, employee skill level plays a crucial role in the effect of digital transformation on pay gap.