Abstract
We examine the influence of founding family ownership, family involvement in management, and promotion environments in family firms on compensation incentives. When family members participate in management, family firms provide lower pay-for-performance sensitivity (PPS), weaker tournament incentives to non-CEO executives, and weaker risk-taking incentives (vega) to non-family executives. Tournament and performance-based incentives exert little influence on performance in these firms. The influence of family ownership on PPS and vega is significantly stronger than the influence of non-family blockholder ownership. Altogether, the results suggest that family ownership, family management, and familial attachment combine to create both superior monitoring and private benefits.
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