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The Impact of Family Representation on CEO Compensation

Authors


James G. Combs, tel.: 850-644-7896; e-mail: jcombs@fsu.edu, to Christopher R. Penney at cpenney@fsu.edu, to T. Russell Crook at trc@utk.edu, and to Jeremy C. Short at jeremy.short@ttu.edu.

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.

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