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Korean Academic Society of Business Administration
[ Article ]
korean management review - Vol. 52, No. 3, pp.777-801
ISSN: 1226-1874 (Print)
Print publication date 30 Jun 2023
Received 16 Apr 2023 Accepted 20 May 2023
DOI: https://doi.org/10.17287/kmr.2023.52.3.777

The Effect of Pay Disparity on Operational Efficiency and Moderating Effects of Employment Security

Inkyung Yoon ; Hansol Lee ; Ho-Young Lee
(First Author) Yonsei University sky3728@yonsei.ac.kr
(Corresponding Author) Kangwon National University hlee@kangwon.ac.kr
(Co-Author) Yonsei University hylee@yonsei.ac.kr
임금격차와 기업의 운영효율성, 그리고 고용 안정성의 조절효과에 대한 연구


Copyright 2011 THE KOREAN ACADEMIC SOCIETY OF BUSINESS ADMINISTRATION
This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This study examines the effect of executive-worker pay disparity on the operational efficiency of firms listed on the KOSPI and KOSDAQ from 2012 to 2020. Additionally, it investigates the impact of employment stability, as measured by the ratio of full-time employees, on the relationship between executive-worker pay disparity and operational efficiency. The results reveal that executive-worker pay disparity negatively impacts a firm's operational efficiency. Furthermore, the adverse effect of executive-worker pay disparity is mitigated as the ratio of full-time employees increases. The study also finds that when the analysis is conducted based on employees' years of service within the same industry, the mitigating effect of the ratio of full-time workers becomes more pronounced for employees with service years exceeding the industry median. This study provides empirical evidence that executive-worker pay disparity impairs employee motivation and adversely affects a firm's operational efficiency, while such negative impact is alleviated by employment stability. This study also provides practical implication that executive-worker pay disparity should be carefully considered when determining the compensation levels of executives and employees in order to enhance a firm's operational efficiency.

Keywords:

pay disparity, operational efficiency, executive compensation, average employee wage, employment status

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∙ The author Inkyung Yoon is currently employed as a research fellow at the School of Business, Yonsei University. She graduated from the School of Business at Yonsei University, and has obtained a master’s and doctoral degree in accounting from Yonsei University. Her primary areas of research include business ethics, auditing, corporate governance, internal control, and ESG.

∙ The author Hansol Lee is currently an Assistant Professor in the Department of Accounting at the College of Business Administration, Kangwon National University. He graduated from the School of Management at the State University of New York at Binghamton, where he also obtained a master's degree in accounting. He earned his doctoral degree in accounting from Yonsei University. His primary areas of research include internal control, corporate governance, disclosure, and ESG.

∙ The author Ho-Young Lee is currently a professor of accounting at the School of Business, Yonsei University. He obtained his doctorate in business administration from the University of Oregon, and previously served as a professor at the University of Nebraska, Omaha. His primary areas of research include internal and external auditing, corporate governance, and ESG.