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Do employee-friendly practices affect executive pay-performance sensitivity? Evidence from corporate annuity systems in China

Author

Listed:
  • Feng Hu
  • Xiaoqiu Chen
  • Xinming Liu
  • Chuyi Yang

Abstract

Leveraging China’s corporate annuity system, a state-guaranteed and employee-friendly practice, we examine its impact on executive pay-performance sensitivity. Our study results show a significant increase in executive pay-performance sensitivity when firms establish an annuity system. Mechanism tests indicate that the optimization of firms’ human capital structure results in increased executive pay-performance sensitivity following the establishment of the annuity system. In cross-sectional analysis, the effect of the annuity system on executive pay-performance sensitivity is more pronounced among high-tech firms and companies with lower financing constraints. We contribute to the research on employee-related corporate governance reforms by elucidating the role of employees in executive compensation contracts, thereby aiding global firms in deepening their positive perceptions of employee-friendly practices.

Suggested Citation

  • Feng Hu & Xiaoqiu Chen & Xinming Liu & Chuyi Yang, 2026. "Do employee-friendly practices affect executive pay-performance sensitivity? Evidence from corporate annuity systems in China," Applied Economics, Taylor & Francis Journals, vol. 58(36), pages 7602-7619, August.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:36:p:7602-7619
    DOI: 10.1080/00036846.2025.2535544
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