Pay for outsiders: Incentive compensation for nonfamily executives in family firms

48 Pages Posted: 18 Mar 2012 Last revised: 21 Aug 2020

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: Aug 20, 2020

Abstract

We examine how incentive compensation for nonfamily executives in family firms differs from incentive compensation for executives in nonfamily firms. Nonfamily executives in family firms receive significantly less performance-based pay and equity-based pay. Family monitoring, risk aversion, and a reluctance to dilute family ownership all contribute to the pay differences. Although incentive pay and total pay are lower in family firms, nonfamily executives receive safer pay and enjoy greater job stability. An analysis of executives’ moves across firms suggests that ownership structure, not executives’ preferences, is more likely the driver of pay differences between family and nonfamily firms.

Keywords: Nonfamily Executives in Family Firms, Executive Compensation, Family Monitoring, Risk Aversion, Ownership Dilution

JEL Classification: G30; G32; J33; M12

Suggested Citation

Li, Zhi and Ryan, Harley E. and Wang, Lingling, Pay for outsiders: Incentive compensation for nonfamily executives in family firms (Aug 20, 2020). Available at SSRN: https://ssrn.com/abstract=2023965 or http://dx.doi.org/10.2139/ssrn.2023965

Zhi Li

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 )

University Plaza
35 Broad Street, Suite 1221
Atlanta, GA 30303-3083
United States
404-651-2674 (Phone)
404-651-2630 (Fax)

Lingling Wang (Contact Author)

University of Connecticut - Department of Finance ( email )

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

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