Innovation provides firms with opportunities to achieve competitive advantage and serves as a useful means and source of core competencies for adapting to market and technological changes. However, despite the fact that investment in innovation requires active support from top management, executives have long been suspected of avoiding innovation investments due to high uncertainty regarding outcomes and the risk of failure. To overcome this problem, executive compensation structures must be adjusted to incentivize managers to bear the risks and costs of innovation investment. Yet empirical research on the specific compensation structures that enhance innovation has been conducted within a very limited scope. This study posits that the relative compensation structure of the top management team (TMT) influences firms' strategic decisions and execution, including innovation, and empirically examined this using a sample of 73 firms across 14 industries in the United States from 1991 to 1995. The empirical results revealed that the pay disparity between the CEO and the TMT has a negative effect on corporate innovation. Additionally, the negative effect of TMT pay disparity on corporate innovation was found to be moderated by TMT proximity. These findings empirically demonstrate that to successfully pursue innovation, it is necessary to induce cooperative behavior rather than excessive competition among top management, and that the role of the management team in mediating conflicts related to technological innovation is also important.