Family firms, performance-related pay, and the great crisis: evidence from the Italian case

Abstract

This article analyses how Italian family firms (FFs) have acted during the global great crisis in comparison to their nonfamily counterparts using a sample of almost 4500 firms for 2007 and 2010. We study whether family control affects labor productivity, labor costs, and competitiveness and how family and nonfamily firm (NFFs) have responded to the great crisis. Furthermore, we test whether the adoption of performance-related pay (PRP) for employees offers an efficacious strategy to mitigate the effects of the crisis. Quantile regression techniques have been used to test the heterogeneous role of PRP, and its possible endogeneity has been taken into account in the empirical investigation. After the outbreak of the crisis, the distance in terms of the competitiveness of FFs in relation to their nonfamily counterparts increased. However, we also find that FFs may take advantage of the adoption of incentive schemes, such as PRP, to encourage commitment and motivation from their employees more than NFFs do. The positive role of PRP on labor productivity, coupled with a moderate influence of these schemes on wage premiums, enables them to regain competitiveness. In addition, for FFs located in industrial districts in which social rules prevail on formal rules, the adoption of PRP has exerted additional positive effects under hostile pressures, such as those characterizing the strong global crisis.