Family Owned Business Institute

Research Scholar's Abstracts 2008 - Vijay Singal, Manisha Singal

Interest Alignment and CEO Compensation in Family Controlled Firms
Vijay Singal, Manisha Singal
2008

This project builds on recent research that finds family-controlled firms outperform their non family controlled peers. We propose that this superior performance can be explained, in part, by the interest alignment rents manifested in the CEO compensation practices of family-controlled firms, who by nature of their ownership and governance, are likely to incur low agency costs, and have a long-term orientation (Miller and Miller, 2005). By combining two streams of organization research, namely family ownership / control, and compensation as a component of corporate governance, this project examines hypotheses that evaluate several aspects of CEO compensation like salary, bonus, stock-based pay and indirect compensation (wealth gains accruing to the CEO by virtue of prior equity ownership in the firm), and their pay-for-performance sensitivity and link to financial performance. Juxtaposing the compensation strategy followed by family controlled firms with their non-family controlled peers enables us to understand how family influence and control affects incentive systems and governance. While contributing to the extant theory on family influence in business, this project aims to lay out implications for public policy, and lists avenues for future research.