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The separation between ownership and management rights is one of the most important aspects of a modern organization. The company is owned by the shareholders, while the management rights are owned by the management of the company. The separation between ownership and management causes owners and executives to have different interests (Elsayed & Elbardan, 2018). It is believed that every human being in an organization is motivated to behave for personal advantage. The appropriate compensation incentive can reduce agency costs (Jensen & Meckling, 1976; Zhao, 2017) and encourage the management to boost their initiative to make greater efforts to generate rewards for themselves (Gong & Liu, 2015; Heyman, 2005; Lazear & Rosen, 1981) by creating results in the form of good business performance (Conyon & He, 2011). Different compensation is one motivator for executives. Increased pay disparities can successfully foster rivalry among executives. Some studies have found the important role of the compensation gap in motivating executives to devote their energy to improving company performance (Canarella & Gasparyan, 2008; Gong & Liu, 2015; Kepes et al., 2009; Kini & Ryan 2012). At the same time, the high compensation gap spurs the executive to want to raise salaries and promote higher positions (Lazear & Rosen, 1981). Designing an appropriate compensation system to motivate executives is essential to business development. Therefore, researching the influence of the internal compensation gap on firm performance (FP) is important to demonstrate how companies can use the compensation system as an incentive for management (Firth et al., 2015; Harbring & Irlenbusch, 2004). Moreover, the impact of executive compensation level should also be considered when studying the impact of the executive compensation gap on FP. This is because the relationships between executives are both competitive and collaborative (Han, 2011) and these relationships are intervened by individual incentives (Kepes et al., 2009). Executives not only compare compensation within the team, but also with other organizations, particularly among peers in the same industry. The internal compensation gap generates an analogy to stimulate competition for performance to earn promotion, while the compensation level creates job satisfaction and commitment (Chiu et al. 2002), consequently leading to lower conflict between shareholders and executives (Li, 2020; Xu et al, 2016).
In China, the energy industry is rapidly expanding to keep up with the country’s economic development. Since the turn of the century, energy consumption will have shifted from a system dominated by coal and fossil to one dominated by renewables. Those companies that produce fossil fuels are at a crossroads, while the companies that produce renewable energy are expanding (Ahmad et al., 2021). The new energy development policies and traditional energy reforms, especially electric power and new energy vehicles, have led to a huge expansion of business. The listed companies involved in the production of new energy vehicles and lithium batteries have become the focus of the market. Leading lithium battery companies have grown in popularity and become the top 10 companies in the Chinese stock market, being the only new economic companies in the top 10. There has never been an emerging technology company with such a large market valuation in the history of China’s stock market. The government’s promotion initiatives coupled with its rapid growth have made the industry watching for its future development (Guo, 2021; Lu et al., 2022).