Purpose The pay-restriction regulation in SOEs is an important and sensitive topic in China at this stage. In fact, compared with pay restrictions in western countries, the pay-restriction regulation in China is a direct regulation on the pay gap between senior executives and ordinary employees in SOEs. As we all know, executive compensation system is an important factor in corporate governance. This study focuses on the consequences of both 2009 and 2012 pay-restriction Regulation for SOEs in China. What impact does the pay-restriction regulation have on executives and corporate governance?Design/methodology/approach This paper studies consequences of the pay-restriction regulation issued and implemented by the Chinese government at the individual and corporate levels of SOEs as well as executives. Based on the collected personal characteristics data on executives and financial data of companies listed in Shanghai Stock Market and Shenzhen Stock Market from 2006 to 2016, we make comparative analysis by ownership nature, defining explanatory variables and explained variables and creating effective models; make descriptive statistical analysis; and make empirical analysis with OLS regression model, fixed-effect panel regression model and Logit regression model with difference-in-difference method. This paper also makes some robustness tests based on propensity score matching (PSM) – DID method.Findings The pay-restriction regulation significantly reduces the executive compensation level of both CEOs and non-CEOs in SOEs. It also reduces the probability of non-CEO’s turnover. In addition, the pay-restriction regulation shows a negative relationship with the cost of SOEs in all aspects, thus increases the return on total assets. Further, the pay-restriction regulation greatly reduces the performances of social responsibility of SOEs. However, it shows no influence on investment efficiency in SOEs.Research Limitations / implications The consequences of pay-restriction regulation in SOEs may be systematic, and there are close internal links between these impacts, which need more in-depth and detailed study.Practical implications Although the implementation of the pay-restriction regulation does reduce the pay level of SOEs’ executives and make their SOEs’ income distribution more rational, it brings a series of serious consequences. Therefore, in the process of Regulation formulation, government management departments should fully take the negative effects into account, and then combine regulation with marketization to establish a more efficient pay system.Originality/value Compensation policy should not be set in a one-size-fits-all way. It not only enriches the study results of incentive compensation theory, but also provides more empirical evidence for the corporate governance of SOEs in developing countries. Keywords Pay-restriction Regulation; SOEs; Executive Compensation; Consequence; Corporate Governance