Do foreign experienced managers influence employee compensation? Evidence from labor investment in China

PurposeThis study aims to investigate whether and how foreign experienced managers influence employee compensation in Chinese firms. While prior research has examined the impact of such managers on corporate governance, innovation and performance, little is known about their effect on labor investment, particularly “rank-and-file” employee compensation. The authors argue that foreign experienced managers are more likely to pursue complex value-added strategies requiring skilled labor, thus increasing compensation levels.Design/methodology/approachUsing a sample of Chinese A-share listed firms, the authors identify foreign experienced managers as CEOs or chairpersons with prior work or study experience outside mainland China. The analysis uses panel regressions, as well as instrumental variable estimation, difference-in-difference (DID) tests and propensity score matching (PSM), to address endogeneity. The authors further examine mechanisms and heterogeneity analysis.FindingsFirms with foreign experienced managers pay significantly higher employee compensation. This relationship is more pronounced where firms have excess cash or lower operating leverage. Mechanism tests support the efficiency wage theory where managers increase the proportion of skilled employees. In private firms, foreign experienced managers appear to increase compensation to improve total factor productivity and firm value. In contrast, foreign experienced managers in state-owned enterprises appear more motivated by political or social goals through enhanced employee treatment. In addition, the authors also find that foreign experienced managers are associated with higher labor cost stickiness, especially in private firms.Originality/valueTo the best of the authors’ knowledge, this is the first study to link managerial foreign experience with employee compensation. The results are particularly relevant for firms and policymakers aiming to balance employee welfare, productivity and strategic human capital investment in the context of global managerial mobility.