Abstract
The paper examines the internal governance of foundation-controlled rms by evaluating how they pay their CEOs. I test for the managerial power and the alignment hypotheses. The former implies larger management discretion and thus higher xed pay in FC rms. In contrast, the latter proposes that performance-based incentive plans can be substituted for monitoring by the controlling shareholder, and accordingly, FC rms should exhibit higher performance pay. Using a sample of family controlled rms listed on the Stockholm Stock Exchange during the period of 2001 { 2009, I nd that foundation family rms reward their CEOs more than non-foundation family ones. While base salary and bonus are equally competitive, foundation family rms strengthen the (long-term) performance pay schemes by increasing the proportion of variable compensation and pay sensitivity to performance. The results are robust to various concerns, such as managerial ownership, family CEO, supplementary monitoring by other large shareholders, and self-selection of better CEOs into FC rms. The
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