Pay for Outsiders: Compensation Incentives for Nonfamily Executives in Family Firms

51 Pages Posted: 25 Sep 2011 Last revised: 5 Aug 2017

See all articles by Zhi Li

Zhi Li

Chapman University - The George L. Argyros School of Business & Economics

Harley E. Ryan

Georgia State University - Department of Finance

Lingling Wang

University of Connecticut - Department of Finance

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Date Written: August 3, 2017

Abstract

Motivated by the dual agency environment in founding family firms, we examine how family firms provide compensation incentives to nonfamily executives. Nonfamily executives receive weaker risk-taking incentives and pay-for-performance incentives when family ownership is high and when family members serve as executives or board directors. Family-firm compensation structure does not include tournament incentives when there are family heirs. The influence of family on compensation incentives is stronger than that of nonfamily blockholders. The findings are not driven by differences in executive types, family firms’ reluctance to dilute family ownership, or the family’s decision to exit/remain in the firm.

Keywords: Family Firms, Nonfamily Executives, Executive Compensation

JEL Classification: G30; G32; J33

Suggested Citation

Li, Zhi and Ryan, Harley E. and Wang, Lingling, Pay for Outsiders: Compensation Incentives for Nonfamily Executives in Family Firms (August 3, 2017). Available at SSRN: https://ssrn.com/abstract=1929072 or http://dx.doi.org/10.2139/ssrn.1929072

Zhi Li (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
714-6287224 (Phone)

Harley E. Ryan

Georgia State University - Department of Finance ( email )

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Atlanta, GA 30303-3083
United States
404-651-2674 (Phone)
404-651-2630 (Fax)

Lingling Wang

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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