Different pay-performance sensitivity in family firms: A perspective of the family incentive alignment hypothesis

Authors: Yi-Hui Tai

Journal: Corporate Management Review. Dec. 2021, 41(2): 1-38

Keywords: Family firm, pay-performance sensitivity, family/non-family manager, family member ownership, family incentive alignment hypothesis.

Abstract:
This research uses Taiwanese listed family firms from 2012 to 2016 as the data to examine whether the compensation of non-family managers is more sensitive to firm performance than that of family managers. In addition, this research tests the moderating effect of family member ownership and considers the impacts of company performance as well as different measurements for such performance on the aforementioned issues. This study finds that the compensation of non-family managers is less sensitive to firm performance than that of family managers, but if the percentage of family members’ shareholdings is higher, then the compensation of non-family managers is more sensitive to firm performance than that of family managers. Furthermore, better company performance also causes the compensation of non-family managers to be more sensitive to firm performance than that of family managers. The results of this study complement the existing family firm literature and serve as a reference for practitioners.