Taking the data of A-share listed companies in Shanghai and Shenzhen from 2008 to 2016 as samples，this paper studies the effect of executive earnings management behavior on the incentive effect of pay gap under the influence of managerial power. It shows that “manipulative pay gap”， i.e. the pay gap caused by earnings manipulation，has a negative incentive effect and harms the future performance of the company. Meanwhile，“non-manipulative pay gap”， i.e. the pay gap connected with the real profits of the company， plays a positive role in promoting the company’s future performance，but this positive incentive effect shows a marginal decline. Further research shows that incentive effect of pay gap varies from industry to industry. For companies in a competitive industry or in a booming industry，the positive incentive effect of non-manipulative pay gap is stronger， while the negative incentive effect of manipulative pay gap remains at a similar level regardless of different industries.