Executive, non-executive compensation, and firm performance: Evidence from FinTech Firms

• The study examines the effect of compensation on performance in FinTech firms. • The general executive pay boosts performance, however, excessive compensation for the top employee negatively impacts firm profitability. • Increasing supervisors’ compensation does not significantly enhance sales growth. • Overpaying top-tier executives and non-executives reduces investor returns. • Firms should optimize executive compensation rather than inflate top-tier pay. The study examines the effect of compensation on performance using data from Fintech firms listed on the Chinese stock market between 2009 and 2022. According to the GMM results, raising overall employees’ compensation increases a firm’s profit (sales-growth). On splitting the compensation into executive (directors and managers) and non-executive (supervisors), we found that executive compensation improves profit (sales-growth) while non-executive compensation plays a less effective role in improving profit (sales-growth). On further splitting the compensation into the compensation of Top-1 and Top-3 employees, we found that increasing the compensation of the top most (Top-1) employees is harmful to the firms. The findings are also confirmed using several performance measures, including ROE, ROA and Tobin’s Q. The findings implied that raising overall executive compensation is in the good interest of the firm and can be used as a management tool to improve performance. The research aids in developing strategies for investors and professionals that in technologically oriented firms, increasing the top-most executive and non-executive pay lowers the returns for the investors.