Executive Compensation, Compensation Gaps, Ownership Concentration and Corporate Performance: An Optimal Control and Stability Analysis for the Chinese Technology Sector

This study investigates the relationship between executive compensation, compensation gaps, ownership concentration, and firm performance in the Chinese technology sector using both empirical analysis and a control-theoretic framework. Drawing on a panel dataset of 6,750 firm-year observations from 847 listed firms, the study examines the effects of CEO compensation, non-CEO compensation, and vertical and horizontal compensation gaps on corporate performance. The results show that CEO compensation, non-CEO compensation, and the non-CEO–employee compensation gap have significant positive effects on firm performance, indicating that incentive-based compensation mechanisms remain effective in enhancing managerial productivity. In contrast, the CEO–non-CEO compensation gap and CEO–industry compensation gap is not statistically significant, suggesting that not all compensation disparities function as effective incentives. Furthermore, ownership concentration is found to weaken the positive relationship between executive compensation and firm performance, highlighting its moderating role within corporate governance structures. By incorporating a controltheoretic model, the study conceptualizes compensation as a dynamic policy instrument and demonstrates that higher ownership concentration reduces the effectiveness of incentive mechanisms by lowering control gains. The equilibrium analysis further shows that firms converge to a stable performance level, although higher ownership concentration leads to a lower steady-state outcome. Overall, the study contributes to the literature by integrating empirical findings with dynamic modeling, offering a more comprehensive understanding of how compensation structures and governance mechanisms jointly influence firm performance.