How do executive pay and its gap with employee pay influence corporate performance? Evidence from Thailand tourism listed companies

Abstract

Purpose- We investigate how executive pay and its gap with employee pay influence the performance of Thailand tourism listed companies. Design/methodology/approach- We manually collect data on the executives’ and employees’ remunerations for Thailand tourism listed companies and use the data for our OLS regression analysis. To check the robustness of our results to potential endogeneity issues, we employ the two-stage least-squares regression analysis and the impact threshold for a confounding variable approach. Findings- We find that short-term executive compensation enhances firm performance, and that long-term executive compensation reduces the likelihood of unfavorable corporate performance. We also find that the gap in short-term pay between executives and employees has an inverted-U relation with firm performance. Originality/value- Our study sheds light on agency problems between executives and employees in tourism companies and provides new evidence and insights on compensation research in the tourism sector in emerging markets. Research limitations/implications- Our study suggests that higher executive pay relative to employee pay could encourage executives to work hard to improve corporate performance, but that too large a pay gap between executives and employees could impair employees’ morale and harm firm performance. Practical implications- It is important for tourism companies to not only pay executives well but also avoid too large a pay gap between executives and employees. Social implications- Our study implies the important role of compensation design in contributing to employee engagement and good performance for tourism firms.