A reasonable executive pay gap can bring into play the incentive effect of Tournament Theory and thus enhance corporate performance, but with the expansion of executive power in listed companies, executives can influence the formulation of compensation contracts and thus affect corporate performance. This paper selects 2012‐2021 A‐share listed companies in Shanghai and Shenzhen as the research sample, and empirically tests the relationship between executive pay gap, management power and corporate performance, and further analyzes them based on the difference of corporate equity. The results show that executive pay gap has a significant positive effect on firm performance, and the positive incentive effect is more pronounced in non‐SOEs than in SOEs. Management power weakens the positive relationship between pay gap and firm performance within the executive team, and the weakening effect is more pronounced in non‐state‐owned firms compared to state‐owned firms.