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The Impact of Family Representation on CEO Compensation

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  • James G. Combs
  • Christopher R. Penney
  • T. Russell Crook
  • Jeremy C. Short

Abstract

Understanding the nature of family representation in public firms has been an important topic for entrepreneurship research. Because CEO compensation is a key tool that boards use to align the interests of shareholders and managers, researchers have taken steps toward understanding how family representation affects CEO compensation. Prior research has painted family–member CEOs as stewards who accept lower compensation. Based on agency theory, we describe a different scenario wherein family representatives engage in strategic control that reduces family–member CEOs‘ compensation. Thus, family–member CEOs accept lower compensation only when additional family members are represented in management or on the board. In comparison with CEOs at nonfamily firms, we find that family–member CEO compensation is 13% lower when multiple family members are involved, but 56% higher when the CEO is the lone family member.

Suggested Citation

  • James G. Combs & Christopher R. Penney & T. Russell Crook & Jeremy C. Short, 2010. "The Impact of Family Representation on CEO Compensation," Entrepreneurship Theory and Practice, , vol. 34(6), pages 1125-1144, November.
    • Handle: RePEc:sae:entthe:v:34:y:2010:i:6:p:1125-1144
    DOI: 10.1111/j.1540-6520.2010.00417.x
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    Cited by:

    1. Andrea Dello Sbarba & Alessandro Marelli, 2018. "Family-controlled businesses and management control: the framing of “shareholder-oriented” practices," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 28(4), pages 417-456, February.
    2. Block, Joern & Ulrich, Lennart, 2023. "Are family owners and managers good stewards in global crises? Evidence from stock market reactions to Covid-19," Journal of Family Business Strategy, Elsevier, vol. 14(1).
    3. Isakov, Dušan & Weisskopf, Jean-Philippe, 2015. "Pay-out policies in founding family firms," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 330-344.
    4. Hanqing “Chevy†Fang & James J. Chrisman & Daniel T. Holt, 2021. "Strategic Persistence in Family Business," Entrepreneurship Theory and Practice, , vol. 45(4), pages 931-950, July.
    5. William S. Schulze & Franz W. Kellermanns, 2015. "Reifying Socioemotional Wealth," Entrepreneurship Theory and Practice, , vol. 39(3), pages 447-459, May.
    6. Richard Gentry & Clay Dibrell & Jaemin Kim, 2016. "Long–Term Orientation in Publicly Traded Family Businesses: Evidence of a Dominant Logic," Entrepreneurship Theory and Practice, , vol. 40(4), pages 733-757, July.
    7. Eng, Li Li & Fang, Hanqing & Tian, Xi & Yu, T. Robert, 2021. "Path dependence and resource availability: Process of innovation activities in Chinese family and non-family firms," Emerging Markets Review, Elsevier, vol. 49(C).
    8. Xiaodong Yu & Laura Stanley & Yuping Li & Kimberly A. Eddleston & Franz W. Kellermanns, 2020. "The Invisible Hand of Evolutionary Psychology: The Importance of Kinship in First-Generation Family Firms," Entrepreneurship Theory and Practice, , vol. 44(1), pages 134-157, January.
    9. Joern H. Block & José María Millán & Concepción Román & Haibo Zhou, 2015. "Job Satisfaction and Wages of Family Employees," Entrepreneurship Theory and Practice, , vol. 39(2), pages 183-207, March.
    10. Peter Jaskiewicz & Joern H. Block & James G. Combs & Danny Miller, 2017. "The Effects of Founder and Family Ownership on Hired CEOs’ Incentives and Firm Performance," Entrepreneurship Theory and Practice, , vol. 41(1), pages 73-103, January.
    11. James J. Chrisman & Esra Memili & Kaustav Misra, 2014. "Nonfamily Managers, Family Firms, and the Winner's Curse: The Influence of Noneconomic Goals and Bounded Rationality," Entrepreneurship Theory and Practice, , vol. 38(5), pages 1-25, September.
    12. Kimberly A. Eddleston & James J. Chrisman & Lloyd P. Steier & Jess H. Chua, 2010. "Governance and Trust in Family Firms: An Introduction," Entrepreneurship Theory and Practice, , vol. 34(6), pages 1043-1056, November.
    13. Engel, Pascal J. & Hack, Andreas & Kellermanns, Franz W., 2015. "Setting the right mix—Analyzing outside directors’ pay mix in public family firms," Journal of Family Business Strategy, Elsevier, vol. 6(2), pages 130-140.
    14. Isakov, Dusan & Weisskopf, Jean-Philippe, 2013. "Do not wake sleeping dogs: Pay-out policies in founding family firms," FSES Working Papers 443, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    15. Waldkirch, Matthias, 2020. "Non-family CEOs in family firms: Spotting gaps and challenging assumptions for a future research agenda," Journal of Family Business Strategy, Elsevier, vol. 11(1).
    16. Gregorio Sánchez-Marín & Antonio J. Carrasco-Hernández & Ignacio Danvila-del-Valle, 2020. "Effects of family involvement on the monitoring of CEO compensation," International Entrepreneurship and Management Journal, Springer, vol. 16(4), pages 1347-1366, December.
    17. Thomas M. Zellweger & Franz W. Kellermanns & James J. Chrisman & Jess H. Chua, 2012. "Family Control and Family Firm Valuation by Family CEOs: The Importance of Intentions for Transgenerational Control," Organization Science, INFORMS, vol. 23(3), pages 851-868, June.
    18. James J. Chrisman & Jess H. Chua & Lloyd P. Steier, 2011. "Resilience of Family Firms: An Introduction," Entrepreneurship Theory and Practice, , vol. 35(6), pages 1107-1119, November.
    19. Andrea Nannicini & Duarte Pitta Ferraz & Ilídio Tomás Lopes, 2018. "Relationship between top executive compensation and corporate governance: evidence from large Italian listed companies," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 15(4), pages 197-209, November.
    20. Peláez-León, Juan David & Sánchez-Marín, Gregorio, 2023. "High-performance work systems in family firms: A mixed gamble approach," Journal of Business Research, Elsevier, vol. 156(C).
    21. Cheng Zhang & Le Luo, 2021. "Board diversity and risk-taking of family firms: Evidence from China," International Entrepreneurship and Management Journal, Springer, vol. 17(4), pages 1569-1590, December.
    22. Chrisman, James J. & Chua, Jess H. & Steier, Lloyd P. & Wright, Mike & McKee, D’Lisa N., 2012. "An agency theoretic analysis of value creation through management buy-outs of family firms," Journal of Family Business Strategy, Elsevier, vol. 3(4), pages 197-206.
    23. Martin R.W. Hiebl & Zhen Li, 2020. "Non-family managers in family firms: review, integrative framework and future research agenda," Review of Managerial Science, Springer, vol. 14(4), pages 763-807, August.

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