The Impact of Family Representation on Ceo Compensation


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 familymember CEOs’ compensation. Thus, family-member CEOs accept lower compensation only when additional family-members are represented in management or on the board. In comparison to CEOs at non-family firms, we find that family-member CEO compensation is 13 lower when multiple family members are involved, but 56 percent higher when the CEO is the lone familymember. Family control is the dominant ownership structure across the globe, and family firms account for a significant portion of all publicly traded firms. In the United States, for example, one third of Fortune 500 firms are at least partially controlled by a single family who maintains substantial ownership in the firm (Anderson & Reeb, 2003). To better understand the role of family influence among large, publicly traded corporations, there has been considerable research interest geared toward understanding the differences between publically traded family and nonfamily firms (e.g., Anderson & Reeb, 2003; Dyer & Whetten, 2006). Although research surrounding family firms has revealed important differences between family and non-family public firms (e.g., Dyer & Whetten, 2006), the topic of CEO compensation has received comparatively less attention. Understanding how family representation influences CEO compensation among public firms is important because CEOs are key resource allocators and decisions makers, and compensation is a key way that boards of nonfamily firms motivate CEOs to make decisions in shareholders’ interests (Jensen & Murphy, 1990). It is questionable whether CEO compensation serves the same role in firms with family representation as it does in non-family firms because families are already heavily invested in the

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@inproceedings{Combs2010TheIO, title={The Impact of Family Representation on Ceo Compensation}, author={James G. Combs and Jim Moran and Christopher R. Penney and Russell Crook and Jeremy C. Short and Jerry S. Rawls}, year={2010} }