| Abstract | The reform of executive compensation level in state-owned enterprises (SOEs) and to construct a reasonable compensation gap has become an important issue in the current comprehensive deepening reform of SOEs. However, the top management team’s pay level among its peers is an important element that impacts on the incentive effects of the compensation gap in top management team (TMT). This paper investigates how the TMT’s pay level affects the relationship between TMT’s pay gap and firm performance under the mandatory disclosure of executives’ compensation in Chinese listed companies. We find that pay gap in TMT has a better tournament effects when the TMT’s pay level is higher than its peers, however, the tournament effects may be restrained when the TMT’s pay level is seriously low. But in Chinese SOEs, the TMT’s pay level has no impacts on the tournaments effects, to enhance the compensation of executives in SOEs is not only controversial, but also useless to the internal tournament effects. The salary reform of SOEs is imperative. However, pay cuts of executives in SOE cannot make it rigidly uniform and should be classification. In the area with higher marketing process, the government’s intervention in executive compensation of SOEs has reduced and raising the TMT’s pay level can also enhance TMT’s tournament effects in SOEs. This paper profoundly discusses the relationship between the TMT’s pay level and competition incentives inside the TMT, which provides further evidence for the salary reform of SOEs. |