Revisiting Executive Pay in Family-Controlled Firms

53 Pages Posted: 26 Sep 2014 Last revised: 4 Oct 2014

See all articles by Juyoung Cheong

Juyoung Cheong

Korea Advanced Institute of Science and Technology (KAIST) - Management Engineering

Woochan Kim

Korea University Business School; European Corporate Governance Institute (ECGI); Asian Institute of Corporate Governance (AICG)

Date Written: September 20, 2014


According to the prior literature, family executives of family-controlled firms receive lower compensation than non-family executives. One of the key driving forces behind this is the existence of family members who are not involved in management, but own significant fraction of shares and closely monitor and/or discipline those involved in management. In this paper, we show that this assumption falls apart if family-controlled firm is part of a large business group, where most of the family members take managerial positions but own little equity stakes in member firms. Using 2014 compensation data of 564 executives in 368 family-controlled firms in Korea, we find three key results consistent with our prediction First, family executives are paid more than non-family executives (by 27% more, on average) and this family premium is pronounced in larger business group firms even after controlling for potential selection bias problems. Second, pay to family-executives falls with the influence of outside family members (their aggregate ownership in the firm minus the ownership held by the family executive in the same firm). Third, family premium in large business group firms rises with group size, but falls with family’s cash flow rights. It also rises for group chairs, but falls with the number of board seats the family-executive holds within the group.

Keywords: executive compensation, family firms, business groups, chaebols, dividend

JEL Classification: G30, G32, G34, G35

Suggested Citation

Cheong, Juyoung and Kim, Woochan, Revisiting Executive Pay in Family-Controlled Firms (September 20, 2014). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 441/2014, Available at SSRN: or

Juyoung Cheong

Korea Advanced Institute of Science and Technology (KAIST) - Management Engineering ( email )

207-43 Cheongryangri-Dong
Seoul 130-722
United States

Woochan Kim (Contact Author)

Korea University Business School ( email )

LG-POSCO Bldg #524
Anam-Dong, Seongbuk-Ku
Seoul, Seoul 136701
+822-3290-2816 (Phone)
+822-922-7220 (Fax)


European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels

Asian Institute of Corporate Governance (AICG) ( email )

1, 5-ga, Anam-dong
Seoul, 136-701
Korea, Republic of (South Korea)

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