Green goals, unequal gains: green transformation and the internal pay gap in China

Despite the strategic imperative of Green Transformation (GT), its distributional consequences remain underexplored. This study investigates how GT affects internal pay disparities in Chinese listed firms. Drawing on panel data from 33,827 firm-year observations between 2010 and 2022, we demonstrate that GT significantly increases the compensation gap between executives and employees. Mechanism analysis reveals that GT intensifies financing constraints, prompting firms to reduce employee wages while maintaining executive pay. Our findings are consistent with resource dependence theory and managerial power theory. However, this negative outcome is not inevitable. The widening pay gap effect is particularly severe in companies with weak internal corporate governance, such as those with CEO duality or low board independence. Crucially, the effect is nullified for firms receiving government green subsidies, which act as a financial buffer. This study adds to the literature by identifying a key mechanism linking environmental strategy to inequality and by demonstrating the critical moderating roles of both internal governance and policy-based financial support. Our findings imply that strong corporate governance is essential for a just transition and that policymakers can use tools like green subsidies to achieve the dual goals of environmental sustainability and social equity.