Career Concerns, Contract Choice, and “Unpaid” Executives

ABSTRACT We examine a unique setting of publicly listed Chinese state-owned enterprises (SOEs), where some top executives are paid by government-controlled parent firms rather than by the firms where these executives work. Because their reported compensation is zero, these executives have been ignored in the literature. We find that the CEOs’ own personal characteristics, the nature of the CEO’s job responsibilities, and the environment in which the firm operates are significantly related to the CEO’s contract type. We also document that parent-paid CEOs have a significantly higher probability of future promotion than other CEOs. Compared to peer firms that directly pay their CEOs, firms with parent-paid CEOs have higher asset turnover. Contrary to concerns that parent-paid executives might extract resources from minority shareholders to the benefit of the parent SOE or local government, we document less use of tunneling or tax strategies under parent-paid contracts. JEL Classifications: G30; J30; M12; M52.