This study examines the distinct effects of vertical and horizontal top management team (TMT) pay dispersion on hotel firm performance, integrating tournament, expectancy, social comparison and equity theories, and investigates the moderating roles of key corporate governance mechanisms.
Using panel data from US publicly traded hotel firms, this study employs a two-way fixed effects model integrated with the Gaussian Copula approach (GCM_FE) to estimate the direct effects of pay dispersion and the moderating roles of corporate governance mechanisms, including board size, board independence, insider equity ownership and CEO duality.
After correcting for the endogeneity of pay dispersion, vertical pay dispersion has no significant association with firm performance. Instead, its effect is governance-contingent, strengthened by board independence and weakened by concentrated insider ownership and CEO duality. Horizontal pay dispersion shows no significant direct or moderated effect, indicating that the performance consequences of TMT pay dispersion are governance-dependent rather than uniform.
Hotel boards should condition vertical pay differentiation on verifiable governance safeguards rather than assuming wider gaps are uniformly motivating, and investors and analysts should interpret disclosed pay gaps in light of a firm's governance structure rather than treating them as uniformly informative.
This paper advances the strategic management and corporate governance literature by isolating the divergent mechanisms of vertical and horizontal pay dispersion, and by delineating specific corporate governance configurations as boundary conditions that either optimize or undermine the motivational efficacy of executive compensation.
