Pay dispersion and ESG performance

This article aims to investigate the relationship between pay dispersion and firm's ESG performance, utilizing the Sino-Securities Index ESG rating data of Chinese A-share listed firms from 2009 to 2021. This article provides new empirical evidence for addressing the controversy between social comparison theory and tournament theory. Empirical analyses show that the vertical pay dispersion has a positive influence on ESG performance, consistent with tournament theory; in contrast, the horizontal pay dispersion negatively affects firm's ESG, which supports social comparison theory. We further discuss the applicability of social comparison and tournament theory, and introduce managerial myopia to reveal the mediating effect between pay dispersion and ESG performance. The findings of this study help to understand the relationship between pay dispersion and firm's degree of sustainability.