Abstract: The incentive effect of internal pay gap on employees and thus on the promotion of TFP in the performance of different employees (executives and executives, executives and employees) and different remuneration differences among enterprises of different nature and scales is different. The empirical research on the A-share listed companies in China from 2008 to 2015 shows that there is a significant positive correlation between the pay gap among senior executives, and the absolute wage gap between senior executives and employees with TFP, however, there is significantly negatively correlation between relative pay gap between senior executives and employees with TFP, and there is “inverted U-shaped” relationship; the implementation of equity incentive can significantly improve the TFP of enterprises, and the effect of the equity incentive is better in non-state-owned, low internal remuneration gap and high market-oriented enterprises; in contrast to restricted stocks, the promotion of options as a motivational tool for TFP is even more pronounced. Therefore, in view of the different nature of enterprise property, the different scales and the different divisions of labor among senior executives in the enterprise (the contribution of value creation is different), the internal pay gap should be managed differently: the state-owned enterprises should be fair and the private enterprises pursue efficiency, but both of them should reflect the core executives of ability and value.

Key words: pay gap, equity incentive, total factor productivity