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Product Market Competition, Executive Compensation, and CEO Family Ties

Author

Listed:
  • Clara Graziano

    (University of Udine
    CESifo)

  • Laura Rondi

    (Politecnico di Torino)

Abstract

This paper analyzes the interaction between product market competition and family ties on the structure of CEO pay, in a panel of publicly listed family firms. To account for the multi-dimensional nature of competition we use a variety of measures. We find that in industries where import penetration is high, products are differentiated or domestic concentration is high, family CEOs’ variable pay is lower than is professional CEOs’ variable pay; but the former is more closely related to firm performance. This result remains strong when we account for the equity component of compensation and for endogeneity concerns and when we test the hypothesis of family CEOs’ “pay for luck”. Our findings suggest that: (1) competition is likely to substitute incentive pay in homogeneous product markets and to complement them in differentiated industries and in markets that are open to international trade; and (2) product market characteristics are more important than are family ties in shaping managerial compensation.

Suggested Citation

  • Clara Graziano & Laura Rondi, 2021. "Product Market Competition, Executive Compensation, and CEO Family Ties," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(3), pages 357-397, May.
    • Handle: RePEc:kap:revind:v:58:y:2021:i:3:d:10.1007_s11151-020-09764-0
    DOI: 10.1007/s11151-020-09764-0
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    More about this item

    Keywords

    CEO compensation; Product market competition; Family firms; Import penetration; R&D and advertising intensity; Corporate governance; Pay-performance sensitivity;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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