Effects of family involvement on the monitoring of CEO compensation
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Effects of family involvement on the monitoring of CEO compensation Gregorio Sánchez-Marín 1 & Antonio J. Carrasco-Hernández 1 & Ignacio Danvila-del-Valle 2,3
# Springer Science+Business Media, LLC, part of Springer Nature 2019
Abstract This study examines the effectiveness of CEO compensation monitoring depending on the extent of family involvement in the firm. Considering the contradictory evidence on the effects of family involvement on CEO compensation reported by the literature to date, we adopt a procedural conception of CEO monitoring – that reflect processes and rules used in family firms for the alignment of CEO incentives structure to the firm interests –, to test four hypotheses derived from agency and socioemotional wealth (SEW) perspectives. Using a sample of 357 family and non-family Spanish companies, the results show that CEO compensation monitoring is inversely related to family status, and the relationship between CEO compensation monitoring and firm performance is stronger in firms where family influence is higher. In addition, we found that the presence of a family CEO negatively affects the implementation of economically instrumental monitoring mechanisms, decoupling CEO compensation from firm performance. Our research, aligned with recent socio-psychological literature on the study of processes of family firm’s management policies, thus contributes to a better understanding of the setting of CEO compensation in family firms as a result of a combination of common bonds and mutual expectations based on emotions and values with contractual and financial factors. Keywords CEO compensation . Family firms . Monitoring mechanisms . SEW . Agency
* Gregorio Sánchez-Marín [email protected] Antonio J. Carrasco-Hernández [email protected] Ignacio Danvila-del-Valle [email protected] Extended author information available on the last page of the article
International Entrepreneurship and Management Journal
Introduction Agency theory originally focuses on contractual relationships where the physical and emotional distance between principals and agents can lead managers to act in their own self-interest (Eisenhardt 1989; Jensen and Meckling 1976). The evidence suggests that opportunism on the part of managers (Devers et al. 2007; Murphy 2013) may be less where the parties are highly interdependent, as is the case of family firms (GomezMejia et al. 2001). The presence of altruism between the CEO (as an agent) and the set of family owners of the firm (as principals) reduces information asymmetries and potential acts of self-interest, increasing feelings of loyalty and commitment (GomezMejia et al. 2003; Schulze et al. 2003). The potential for opportunism in family firms must also take into account the close relationship where the parties work closely together and are emotionally attached (Cruz et al. 2010; Jaskiewicz et al. 2017). The socioemotional wealth (SEW) perspective (Gomez-Mejia et al. 2007) argues that the affective endowment of family firms may explain the design of contracts and monitoring mechanisms fo
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