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Family Business Review
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Introduction
To remain competitive, family firms must attract and
retain family and nonfamily executives who can help the
business succeed. Even though there are several impor-
tant human resource management practices that help
explain why individuals are attracted to and decide to
stay in a firm, executive compensation plays an impor-
tant role in the decision to join and stay with a firm
(Ensley et al., 2007). In a broad sense, executive com-
pensation is a way of measuring and rewarding perfor-
mance (de Kok et al., 2006), and it can affect executive
decision-making and strategic choices (Finkelstein et al.,
2009)—and ultimately the success or failure of the firm.
Although research has explored aspects of executive
compensation in family businesses, much of our current
understanding is nested within the business system
(Combs et al., 2020; Odom et al., 2019). This reliance on
business factors often results in an “overly simplistic
comparisons between family and nonfamily firms”
(James et al., 2012, p. 88), and ignores the heterogeneity
and complexity of family firms.
Given the importance of executive compensation and
the complex nature of family firms, the goals of this
article are to determine what we know about designing
and implementing executive compensation in family
firms and to explore the role the family system can play
in this process. A focus on the importance of the family
system allows us to address how the characteristics of
the family (e.g., its level of cohesion, shared goals, and
shared values) affect the family’s decision-making pro-
cesses as well as the structure and the outcomes of exec-
utive compensation in the family firm. This knowledge
allows us to grasp the complexity of family systems, to
consider the impact of the family system on decision-
making about the family firm, and to help explain differ-
ences in executive compensation policies and practices
across family firms. This way, future research can pro-
vide additional insights into how business families affect
different behaviors in family firms, and how these
1064410FBRXXX10.1177/08944865211064410Family Business ReviewMichiels et al.
research-article2021
1Hasselt University, Diepenbeek, Belgium
2University of Louisville, Louisville, KY, USA
3Florida Atlantic University, Boca Raton, FL, USA
Corresponding Author:
Anneleen Michiels, Research Center for Entrepreneurship and Family
firms, Hasselt University, Martelarenlaan 42, Hasselt, 3500, Belgium.
Email: anneleen.michiels@uhasselt.be
Toward a Family Science Perspective
on Executive Compensation in Family
Firms: A Review and Research Agenda
Anneleen Michiels1, Isabel C. Botero2, and Roland E. Kidwell3
Abstract
In family firms, the family often plays a central role in the strategic decisions of the business. However, until recently,
research has primarily focused on exploring the role that business factors play in firm decision-making, with less
attention given to the role of the family system. This article reviews the research on executive compensation in
family firms to understand whether and how the family system has been considered within this work. Guided by
the application of family science theories, we provide a framework to explain why it is important to incorporate the
family system in the future study of executive compensation in family firms. We conclude by discussing a research
agenda outlining how elements of the family system can be integrated into future executive compensation research
to inspire scholars to think differently about this important research topic.
Keywords
executive compensation, literature review, family firms, family science
2 Family Business Review 00(0)
behaviors play a role in the compensation of family as
well as nonfamily executives.
Guided by the principles of reflexivity and creative
synthesis (Alvesson & Sandberg, 2020), we consider
this review an “opening up exercise” that enables us to
examine and rethink existing literature so as to generate
new ways to consider this specific phenomenon.
Reflexivity guides us with the following questions:
What may be problematic and constraining in my and, in
particular, my research community’s way of thinking about
this domain? Are there alternatives that I (we) don’t
consider? Can I (we) read literature or talk with people
offering an alternative view, providing support in
understanding the possible arbitrariness of the way we tend
to do research, and produce a specific type of reasoning and
results? (Alvesson & Sandberg, 2020, p. 1300)
Then, creative synthesis integrates existing frameworks
with insights from the analysis to formulate a new per-
spective regarding the topic. By applying these two
principles, we hope to direct research on executive
compensation in family firms in a way that helps family
business owners design compensation practices that
reflect the family’s goals and values (Binz Astrachan
et al., 2021).
Our review of 71 journal articles about executive
compensation in family firms (published between 1983
and 2020) indicates that research in this area is nested in
the business system and is studied mainly on the basis
of agency theory. Although agency theory-based
research highlights family business heterogeneity, it
mainly provides a generic, macro-level classification of
the firm from a business perspective. Therefore, current
research is unable to reveal the more complex heteroge-
neity of family firms. As family business research
moves to better comprehend the family’s impact on the
business, we propose it is important to incorporate fam-
ily science theories to understand how and why family
characteristics and dynamics play a role in predicting
drivers, outcomes, and decision-making processes
regarding executive compensation in family firms.
Thus, we build on the findings from our literature
review to explain why and how family science theories
bring to the forefront the family system as a way to
understand and capture the multifaceted nature of exec-
utive compensation in family firms.
Examining the internal characteristics of business
families (e.g., the number of family members involved
in the business, generational stage of the firm, the
power exercised by family members, personal dynam-
ics among the family and in the firm) and the presence
of family and nonfamily executives in the business will
likely bring out the heterogeneity of family firms when
it comes to executive compensation and invite compari-
sons across family firms. These internal characteristics
address the diversity and complexity of families and
their businesses (Chandler, 2015). They also point to
the role that family science theories can play in explain-
ing processes and outcomes that help foster and protect
the family member goals and the needs of family share-
holders and stakeholders. By not considering the family
in the development of a family firm’s compensation
system, researchers fail to grasp the complexity of the
family system.
To provide insights and to guide future inquiry, we
developed a family science theoretical framework and
a set of key research questions to understand the het-
erogeneity of executive compensation across family
firms. Such a framework will encourage researchers to
advance well beyond comparisons of the “average”
family firm to the “average” nonfamily firm regarding
executive compensation. Thus, a key contribution of
this article is that, based on family science theories, it
proposes and explains why and how family variables
and relationships should be included in the future
study of executive compensation in family firms.
Theoretical perspectives in family science move
beyond a primarily business orientation to address and
explain family interactions. Such a focus can help
researchers broaden the methodologies, data collec-
tion strategies, and compensation foci (i.e., consider
structure or dispersion of pay, not just level). We hope
to inspire researchers to think differently about execu-
tive compensation in family firms by providing a theo-
retical and empircal focus not addressed in previous
work on nonfamily executives (Klein & Bell, 2007),
nonfamily members in family firms (Tabor et al.,
2018), and socioemotional wealth and human resource
management in family firms (Cruz et al., 2011).
To achieve our goals, this article is structured the fol-
lowing way. First, we discuss the method we employed
and the scope of the review about executive compensa-
tion in family firms. Next, we report the general charac-
teristics of the research and synthesize what we know
about executive compensation in family firms in terms of
theoretical foundations, level of pay, structure of pay, and
pay dispersion. Then, based on family science theories,
Michiels et al. 3
we discuss why and how family factors can influence
decisions about executive compensation in family firms.
Finally, we advance examples of key research questions
for future inquiry.
Method and Scope of the Review
To identify relevant articles to review, we followed the
guidelines suggested by Tranfield et al. (2003) and
David and Han (2004), which is consistent with previ-
ous reviews on family business research (e.g., Andreini
et al., 2020; Calabrò et al., 2019; Michiels & Molly,
2017; Qiu & Freel, 2020). Given the high degree of
heterogeneity in how executive compensation has
been studied, we began the process by choosing to
include only published, peer-reviewed, English-
language journal articles, thereby excluding unpub-
lished work or book chapters. Second, article titles or
abstracts had to include terms referring to both family
firms and executive compensation. We identified the
following keywords to capture the “family entity”:
family enterprise, family business, family firm, family
SME, family influence, family owner, generation, fam-
ily executive, family manager, family TMT, or family
CEO. These terms were combined with keywords used
to capture the “executive compensation” entity: pay,
paid, salary, compensation, incentive, bonus, remu-
neration, LTIP, stock option. We searched for the com-
bination of an executive compensation entity and a
family business entity in the title and/or the abstract of
articles that were published in print or online through
August 2020.
First, we scanned the major outlets for family busi-
ness and executive compensation research individually
by manually checking the indexes. Following the
approach of Daspit et al. (2018), we searched 34 promi-
nent journals in finance, management, and economics.
Similar to Tabor et al. (2018), we added journals with a
specific family business focus to this list (i.e., Journal of
Family Business Strategy and Journal of Family
Business Management). For the specific focus of this
review article, we also added prominent journals in the
area of human resource management (i.e., Human
Resource Management, Human Resource Management
Journal, Human Resource Management Review).
Subsequently, we broadened our search by entering
the abovementioned search terms in three databases:
EBSCO Host Business Source Complete, ProQuest
Central, and Elsevier ScienceDirect. Finally, we queried
researchers from the fields of family business, organiza-
tional behavior, and human resources management via
three different listservs to see if they were aware of any
other (forthcoming) articles relating to executive com-
pensation in family businesses. For an article to be
retained, authors needed to include executive compensa-
tion as an important construct or variable within the
paper. Otherwise, the article was removed from consid-
eration. Using the method and criteria described above,
a total of 71 articles, published in 48 different journals
comprise the basis for our review.
To analyze these studies, we used an excel data
extraction sheet in which we coded descriptive elements
(e.g., authors, journal, theories used, sample, methodol-
ogy, and measures), the research question, main results,
and important notes for each article. Table 1 provides an
overview of all studies included in this review.
Executive Compensation in Family
Firms: A Review
We now describe the extant research regarding execu-
tive compensation in family firms. First, we briefly
discuss the general characteristics of the studies in the
review followed by the major theoretical approaches
taken in previous research and their limitations. Then,
we summarize key findings related to executive com-
pensation in the level of pay, the structure of pay and
pay dispersion family firms, and the limitations of
current research. In brief, we found that research in
the family business field—similar to general execu-
tive compensation studies (see Edmans et al., 2017
for a comprehensive overview)—mainly considered
three basic issues regarding compensation. The first
group of studies focused on understanding the factors
related to the amount of pay that executives receive
(i.e., level of pay). The second group of studies
explored the structure of the compensation packages
that family firms used for family and nonfamily exec-
utives (i.e., structure). The third group of articles
focused on the study of pay dispersion among execu-
tives. After summarizing these findings, we describe
the accomplishments and shortcomings of extant
research and use reflexivity and creative synthesis to
set the stage for advancing a family science theoreti-
cal framework in which to center future research on
executive compensation.
4
Table 1. Papers Included in the Current Review.
Source Theoretical framework Sample Pay measures Key findings
Amoako-Adu etal. (2011) Optimal contracting theory;
managerial power theory
700 firm-year
observations from
public Canadian firms
Total executive compensation Family executives in dual class firms are paid more than nonfamily executives in the same position. The
higher compensation comes mainly in the form of stock options. Family executives in dual class firms
receive higher incentive-based compensation than family executives in single-class firms.
Baek and Fazio (2015) Agency theory 1,532 public U.S. firms CEO incentive compensation Family ownership is negatively related to the propensity to adopt equity-based compensation plans and
to the ratio of such compensation to total pay. The CEO’s dividend income relative to the CEO’s total
compensation was negatively related to the propensity to adopt an equity-based compensation plan.
Banerjee and Homroy (2018) Agency theory 577 public Indian firms Total CEO pay Business group affiliates with a family CEO use more performance-sensitive CEO pay than in widely held
stand-alone firms.
Barkema and Pennings (1998) Agency theory 143 private Dutch firms CEO total compensation (base
pay + bonus)
CEO’s overt power has a curvilinear relationship with executive compensation. CEO’s covert power
magnifies the effect of equity holdings on compensation.
Barnett and Kellermanns (2006) Organizational justice Conceptual NA Perceptions of distributive justice influence nonfamily managers’ attitudes toward pay, and how likely they
are to engage in value-creating behaviors toward the firm.
Barontini and Bozzi (2018) Agency theory 199 public European firms Total CEO pay In firms owned by descendants, the presence of multiple family members is beneficial in lowering
CEO compensation, while the opposite is true in presence of the founder. The number of family
representatives on the board exerts a strong influence on the pay of family CEOs, but not on the pay
for nonfamily CEOs. In certain family clusters, CEO pay is higher than in NFFs.
Basu etal. (2007) Agency theory 174 public Japanese firms Total executive income (salary,
bonus, dividends, capital gains)
A founding family-controlled firm tends to pay its top executives more.
Berrone etal. (2008) Agency theory with contextual
and institutional factors
Conceptual NA Builds conceptual model on the design of compensation packages in FFs that are in the high-tech sector.
Bhabra and Hossain (2018) Agency theory 786 public and private
Canadian firms
Total executive compensation
(average of top 5)
Both family ownership and family majority ownership lead to higher total executive pay. Family ownership
is positively associated with equity pay; however, when family owns the majority of the shares, the
relation is negative. Similarly, family ownership is negatively associated with cash pay, and family majority
ownership has a positive relation with cash pay.
Block (2011) Agency theory (optimal
contracting)
Conceptual NA Builds conceptual model on the effect of incentive compensation in accounting performance and CSR.
Bozzi etal. (2017) Agency theory 986 firms from 11
European countries
CEO compensation structure The negative effect of the level of investor protection on the level of CEO compensation is higher for
family CEOs than for nonfamily CEOs in FFs.
Cai etal. (2013) Agency theory, family trust 1,600 managers from
Chinese private firms
Base salary, incentive contracts Family managers earn higher salaries and receive more bonuses than nonfamily managers in the same firm.
Carlson etal. (2006) Agency theory 168 Family SMEs % base salary, % cash incentives,
% noncash incentives, %
benefits/perks
The use of cash incentives is significantly related to higher performing firms (on all levels: CEO, sales
managers, other key managers, and all employees)
Chen etal. (2014) Agency theory (principal-agent;
controlling-minority)
6,387 firm-year
observations from
public Taiwanese firms
TMT pay structure; cash bonus FFs offer a lower proportion of variable compensation to total compensation to their TMT than NFB. FFs
with central agency problems provide their TMT with higher proportions of cash compensation than FFs
without central agency problems.
Chen etal. (2016) Agency theory, stewardship
theory, upper echelons theory
173 executives from
public Taiwanese firms
Perceived pay premium
(experiment)
High executive compensation influences the incumbent CEO’s perception about a professional manager’s
degree of stewardship, which is a key factor behind the CEO succession decision.
Chen and Chu (2020) Agency theory, human capital
theory
5,215 firm-year
observations from
public Taiwanese firms
CEO pay (salary/bonus) The relationship between CEO compensation and CEO ability is much stronger in the presence of better
compensation committees in FFs with nonfamily CEOs, but this relationship does not exist in FFs with
family CEOs.
Cheng and Firth (2006) Agency theory 336 public Hong Kong
firms
CEO pay, average executive
directors pay; compensation of
top five employees; bonus per
executive; bonus as % of pay
Found no evidence that directors use the power that comes from high stock ownership to award high
compensation to themselves.
Cheng etal. (2015) Agency theory 734 public Chinese firms Total executive cash
compensation
Family ownership is positively associated with total executive compensation. Governance factors affect
how different family ownership structures influence compensation contracts.
Cheong and Kim (2019) No specific theory 304 Korean family firms Total executive pay Family executives receive higher compensation than nonfamily executives in business group firms. The
pay offered to family executives tends to be high when the proportion of shares held by other family
members is low.
(continued)
5
Source Theoretical framework Sample Pay measures Key findings
Cheung etal. (2005) Agency theory 412 public Hong Kong
firms
Level of total pay for CEO and
Chairman
The smaller the firm, the more likely it is for owner-managers to use their ownership rights to extract
higher cash salaries for themselves.
Chourou (2010) Agency theory 167 public Canadian firms CEO total cash compensation Owner CEOs in FFs receive higher levels of compensation than nonowner CEOs when voting rights and
cash flow rights diverge.
Chrisman etal. (2007) Agency theory, stewardship
theory
208 private U.S. firms Incentive compensation FFs monitor family managers and compensate them with incentives to a large extent. The use of incentive
compensation results in better firm performance.
Chrisman etal. (2014) Bounded rationality Conceptual NA Build a conceptual framework to explain why family-centered noneconomic goals and bounded rationality
decrease the willingness and ability of FF to hire and provide competitive compensation to nonfamily
managers even if those managers are more talented than available family managers and the labor market
is composed of stewards rather than agents.
Chua etal. (2009) Agency theory Conceptual NA Builds conceptual model of managerial compensation that predicts favorable compensation treatment for
family manager over nonfamily managers.
Cohen and Lauterbach (2008) Agency theory, managerial
discretion approach,
exploitation approach
124 public Israeli firms Total CEO pay The mean pay of owner CEOs in FFs is almost identical to the mean pay of CEOs in partnership firms.
Combs etal. (2010) Agency theory 381 public U.S. firms CEO total cash compensation;
stock options
Differences in CEO pay can be partially attributed to how family is represented among large public firms.
Family CEOs in firms with multiple family members take less compensation than CEOs in NFBs. CEOs
at family firms without multiple family members have higher compensation packages.
Croci etal. (2012) Managerial power theory,
optimal contracting theory
3,731 firm-year
observations from
public firms from
14 countries in
Continental Europe
Total CEO pay level; CEO pay
structure (equity ratio)
Institutional ownership is associated with higher levels of CEO cash and total compensation in FFs. They
also increase the use of equity-based compensation both in FFs and NFFs.
Cui etal. (2018) Behavioral agency model 2,950 public U.S. firms CEO’s long-term incentives FFs tend to provide a higher level of long-term incentives to nonfamily CEOs than family CEOs. In
addition, long-term incentives strongly motivate CEOs to improve firms’ CSR performance, regardless
of their family memberships.
De Cesari etal. (2016) Agency theory 760 private firms from
Continental Europe
Total CEO compensation; CEO
cash compensation
CEOs of FFs have lower levels of total compensation, but they do not have lower cash compensation.
Nonfamily CEOs are more able to exploit an acquisition to increase their compensation after the
acquisition.
Dressler and Tauer (2015) Socioemotional wealth (SEW);
agency theory
230 public and private
U.S. firms
Market salary estimates; implied
compensation estimate
Market compensation returns for hired farm managers were compared with the estimated implied
compensation manager returns for family managers.
Ensley etal. (2007) Equity theory; tournament
theory
200 private U.S. firms Pay dispersion in TMT Pay dispersion creates negative behavioral consequences in family teams where group dynamics are more
complicated. Nonfamily TMT members respond more positively to long-term pay dispersion.
Farrell and Winters (2008) Not theory driven but agency
theory is mentioned
1,825 private U.S. firms Total salary paid to all top
executives
The authors find a negative relation between executive salaries and firms with greater than 50% family
ownership.
Gallego and Larrain (2012) No specific theory 1,648 executives from
public and private firms
from Argentina, Brazil,
and Chile
Total CEO compensation Professional CEOs in FFs make around 30% more than CEOs in other firms. Given that their sample
includes only nonfamily CEOs, the family premium is not a mechanical result of nepotism.
Goh etal. (2016) None that are clear 152 public French firms Disclosure of stock options FFs are less likely to disclose information on stock option expenses than NFFs.
Grabke-Rundell and Gomez-
Mejia (2002)
Agency theory, resource
dependency theory
Conceptual NA CEO’s (family) stock ownership is expected to have a positive effect on the level of CEO pay.
Graziano and Rondi (2021) Agency theory 1,092 firm-year
observations from
public Italian firms
Variable share of CEO pay to
total CEO pay
Family CEOs’ variable pay is lower than nonfamily CEOs’ variable pay in industries where import
penetration is high, products are differentiated, or domestic configuration is high.
Hsieh etal. (2019) Agency theory 1,271 firm-year
observations for 79
firms
CEO pay (cash pay, equity-based
pay, and total compensation)
Immigrant-founder FFs compensate their CEOs with higher equity-based pay than immigrant-founder NFs.
(continued)
Table 1. (continued)
6
Source Theoretical framework Sample Pay measures Key findings
James etal. (2017) Agency theory; stewardship
theory
398 Canadian firms Use of performance-based pay Nonfamily managers are significantly less likely to be remunerated with performance-based pay or share
ownership than family managers.
Jaskiewicz, Block, Combs, and
Miller (2017)
Agency theory; signaling theory 335 public U.S. firms CEO incentive compensation Family owners use more CEO incentives and more effectively tie them to firm performance than founder
owners.
Jaskiewicz, Block, Miller, and
Combs (2017)
Agency theory; SEW 358 public U.S. firms TMT pay dispersion (excl. CEO) Family ownership is more positively related to TMT pay dispersion than founder ownership. Later
generation family owners are negatively related to TMT pay dispersion.
Jong and Ho (2019) Agency theory 279 public Malaysian firms Level of total executive
compensation
Family ownership is positively related to executive compensation.
Kim and Han (2018) Managerial power theory 670 public Korean firms Total CEO pay Family CEOs in FFs do receive higher total CEO compensation than nonfamily CEOs in family firms. The
pay-for-performance sensitivity is lower for family CEOs in FFs than nonfamily CEOs in FFs and CEOs
in NFFs.
Gomez-Mejia etal. (2003) Agency theory 253 public U.S. firms Level of total CEO compensation Family CEOs receive lower total pay than professional managers. Pay disadvantage increases as the family
ownership position improves. Although family CEOs tend to earn less, they are compensated for
assuming greater uncontrollable risk.
Lam and Lee (2012) Agency theory 346 firm-year
observations from
public Hong Kong firms
Remuneration committee
(dummy)
Family ownership has an adverse effect on the relation between the remuneration committee and firm
performance.
Lansberg (1983) No specific theory Conceptual NA Exchange of resources is governed by affective principles, needs, and care about long-term well-being of
others, not just the value of goods and services being exchanged
Gomez-Mejia etal. (2019) Behavioral agency model 1,636 public U.S. firms Stock options While the design of the compensation package of FFs and NFFs is very similar, the observed effect of CEO
incentives on risk-taking is practically nil for FFs. Thus, the monitoring advantage combined with the
additional socioemotional risk bearing of family principals appears to negate the effect of CEO option
incentives on risk-taking in FFs. Within FFs, family CEOs will be less inclined to make egocentric, higher
risk strategic decisions aimed at increasing their prospective option wealth.
Mazur and Wu (2016) Agency theory 362 public U.S. firms CEO compensation structure NFFs adopt higher value enhancing pay incentives than FFs.
McConaughy (2000) Family incentive alignment
hypothesis; agency theory
82 public U.S. firms Level of total CEO compensation Family CEOs receive less pay and their compensation is less sensitive to firm performance than nonfamily
member CEOs
Memili etal. (2013) SEW 2019 private U.S. firms Incentives for nonfamily
managers (dummy)
Family influence and control, and intrafamily transgenerational succession intentions are negatively related
to the propensity to use incentives. The interaction effects of family management and ownership reduce
the propensity to use incentive.
Michiels etal. (2013) Agency (optimal contracting) 529 private U.S. firms Total CEO compensation Objective performance-based measures play a significant role in CEO compensation. CEO compensation
is more responsive to firm performance in firms with low ownership dispersion and in the controlling
owner stage. The pay-for-performance relation is slightly stronger for nonfamily CEOs than for family
CEOs.
Navarro and Ansón (2009) Agency theory 132 public firms Remuneration committee Family firms make less use of remuneration committees than nonfamily firms.
Nyantakyi (2016) None that are clear 135 public and private
African firms
Total CEO compensation While family managers receive higher performance-based compensation than nonfamily managers, their
compensation is less sensitive to firm performance.
Pagliarussi and Costa (2017) Agency theory; identity theory Conceptual NA The presence of family ties between principal and agent changes the optimal incentive contract
parameters.
Patel and Cooper (2014) Power distributions; structural
power; TMT dynamics
1,934 firm-year
observations from
public U.S. firms
Compensation equality between
TMT members
Greater equality in structural power (e.g., compensation) across family and nonfamily TMT members
increases performance in FFs. This relation is stronger under increasing environmental dynamism and
higher governance performance, but weaker under the presence of a founder CEO.
Perry etal. (2013) None that are clear 605 public and private
firms
Compensation practices Family influence significantly predicts compensation preference. Compensation practices are negatively
related to the FF owner’s assessment of their business ethical stringency.
Pooser etal. (2017) Stewardship theory; agency
theory
86 public U.S. firms Total CEO compensation level
and structure
FFs have lower current CEO compensation and lower forward CEO compensation in comparison with
NFFs.
(continued)
Table 1. (continued)
7
Source Theoretical framework Sample Pay measures Key findings
Ramaswamy etal. (2000) Human capital theory, corporate
governance theory
150 public Indian firms Level of total CEO compensation Increasing levels of family ownership decrease the incidence of managerial opportunism, reducing the
incidence of excessive CEO compensation
Schulze etal. (2003) Agency theory, theory of the
household, altruism theory
883 private U.S. firms Variable pay for family members
(dummy)
Identifies circumstances in which altruism moderates the influence of pay incentives on the performance
of FFs.
Sharma and Huang (2014) No specific theory 14,073 firm-year
observations from
public U.S. firms
Pay dispersion Family ownership increases the likelihood of CEO not being the highest paid manager.
Speckbacher and Wentges
(2012)
Resource-based view 304 German and Austrian
public and private firms
Incentives for TMT (dummy) The use of incentive contract is lower in FFs. Involvement of founding family members in the TMT is
associated with making less use of incentive contracts for managers.
Tang (2014) Agency (optimal contracting);
managerial power
1,582 firm-year
observations from
public U.S. firms
Total CEO compensation; CEO
stock option grants
Stock option grants to nonfamily CEOs in FFs decreased after the passage of SOX. NFFs granted
significantly more stock options than FFs before SOX, but not after its passage.
Tinaikar (2014) Agency theory 210 public U.S. firms Total CEO compensation; excess
compensation
NFFs have more excess CEO compensation than FFs.
Tiscini and Raoli (2013) Idiosyncratic private benefits
approach
235 public Italian firms Stock option plans (dummy) The likelihood of SOP increases with higher involvement of key family members in the governance of a
firm.
Tsao etal. (2015) Agency theory 2,183 firm-year
observations from
public Taiwanese firms
Total CEO compensation FFs positively moderate the relation between R&D investment and CEO compensation. CEO
compensation is less sensitive to explicit performance measures in FFs when compared with NFFs.
Yarram and Adapa (2020) Agency theory 821 firm-year
observations from
public Australian firms
Total CEO compensation FFs have lower levels of CEO pay than NFFs.
Veliyath and Ramaswamy (2000) Social embeddedness theory 122 public Indian firms Total CEO compensation Family shareholdings and the percentage of family directors on the board are predominant influences on
CEO pay.
Wang etal. (2020) Agency theory 14,152 public Taiwanese
firms
Average managerial pay
Average director pay
Pyramidal ownership and higher control-ownership deviation reduces executive compensation in FF.
Wu and Mazur (2018) Information asymmetry, q-theory
of investment, risk aversion
1,756 public U.S. firms CEO incentive pay Pay incentives in FFs are not associated with capital expenditures. Family CEO incentive pay manifests the
family preference for lower risk, especially in firms with higher firm risk.
Young and Tsai (2008) Social network theory 314 public Taiwanese
firms
Total CEO pay The pay of family CEOs is less sensitive to the CEOs social capital than that of nonfamily CEOs.
Yu etal. (2020) Evolutionary psychology theory,
SEW
421 public Chinese firms Nonfamily executive salary
(salary + bonus + allowance)
FFs with distant kinship ties are more likely to pay nonfamily executives lower salaries, compared with FFs
with close kinship ties. This relation is moderated by firm performance and family ownership.
Note. FF = family firms; NFF = nonfamily firms; CEO = chief executive officer; TMT = top management team; SMEs = small- and medium-sized enterprises; CSR = corporate social responsibility; SOX =
Sarbanes-Oxley; SOP = share option plan.
Table 1. (continued)
8 Family Business Review 00(0)
General Characteristics of the Studies in the
Review
The body of articles about executive compensation in
family firms began in 1983 with the work of Lansberg
on the institutional overlap in family firms and its
effects on human resource management. However,
interest in the topic truly emerged in the 2000 to 2010
decade and grew exponentially in the past decade. The
studies have been published in journals from a variety
of disciplines including management, finance, econom-
ics, human resource management (HRM), strategy, and
organizational behavior. Only eight articles included in
the review were published in family business journals:
five articles in Family Business Review, one in Journal
of Family Business Strategy, and two in Journal of
Family Business Management. The method employed
in the research articles was either quantitative (87%) or
theoretical (13%). None of the articles used a qualita-
tive method. About 85% of the empirical studies
explored executive compensation in publicly traded
firms and most of them were single country studies.
Interestingly, a third of the studies did not provide a
clear definition of “family business” and did not pro-
vide any information regarding how family firms were
identified in their samples.
Theoretical Foundations
Although our review identified a dozen theoretical
frameworks used to develop hypotheses and predictions
in the study of executive compensation in family firms
(see Column 2 in Table 1), the vast majority of the arti-
cles heavily relied on agency theory as the theoretical
framework for their predictions. Agency theory (Jensen
& Meckling, 1976) focuses on the divergent interests
and risk incentives of the owners of an enterprise (i.e.,
principals) versus its managers (i.e., agents), and
assumes that compensation is an efficient means to
effectively monitor and align the interests of owners and
managers to reduce conflicts. Agency theory research in
family firms generally assumes that family firm leaders
are overly generous with family member employees in
terms of compensation, promotions, and other rewards,
regardless of qualifications.
Three general hypotheses about executive compensa-
tion have been explored using agency theory. First, the
optimal contract approach or incentive alignment
hypothesis suggests that executive compensation is
designed to minimize agency costs (Aggarwal &
Samwick, 1999; Demski & Feltham, 1978). From this
perspective, the compensation of nonfamily executives
or executives in nonfamily firms should be higher than
family executives or family firms (i.e., assuming that
family firms are family managed) because family execu-
tives/family firms have lower agency conflicts when
compared with nonfamily executives/firms. Second, the
rent extraction/incentive alignment hypothesis (Bebchuk
et al., 2002) argues that given that senior managers con-
trol the pay setting process, executives in family firms
will be more likely to compensate themselves better
(i.e., in excess) in comparison with nonfamily execu-
tives and executives in nonfamily firms. The third
hypothesis is the idiosyncratic private benefits hypothe-
sis (Tiscini & Raoli, 2013), which argues that the extent
to which family executives bring resources that are key
for the success of the firm should increase the compen-
sation that they receive.
Whereas a few studies have relied on stewardship,
socioemotional wealth, and other theoretical approaches,
which broaden the study of executive compensation in
family firms by introducing additional assumptions, the
overarching emphasis on agency theory potentially lim-
its our understanding of this phenomenon by nesting it
in the business system of the family firm. This is prob-
lematic because agency theory assumptions do not take
into account the complexity of families and family firms
(cf. Boyd & Solarino, 2016; Eisenhardt, 1989), and lead
researchers to focus on general descriptive factors as the
primary drivers of executive compensation in family
firms with less emphasis on other internal factors that
could play a very relevant role in the process. After we
summarize and analyze the extant research, we propose
a family science theoretical perspective in which to
study executive compensation in family firms. As noted,
such a perspective will increase the ability to capture the
heterogeneity of executive compensation strategies
across different types of family firms.
Level of Pay
Most studies included in the review focused on under-
standing the factors related to the level (or total amount)
of pay that executives receive and most of them try to
understand whether family firms pay their executives
less or more than nonfamily firms. As discussed, the
vast majority of these studies rely on agency theory to
build their arguments. Results are mixed. Some studies
Michiels et al. 9
support the long-standing view that CEO (chief execu-
tive officer) pay in family firms is lower due to the atten-
uation of the principal-agent problem (e.g., De Cesari
et al., 2016; Pooser et al., 2017; Tinaikar, 2014; Yarram
& Adapa, 2020). Others find that family ownership
leads to higher executive pay levels, due to higher con-
trolling-minority agency problems (e.g., Basu et al.,
2007; Bhabra & Hossain, 2018; M. Cheng et al., 2015).
These mixed findings could have several causes.
First, these studies mainly use a dummy variable as a
measure of family businesses, thereby ignoring the het-
erogeneity of family firms. Given that differences
among family businesses may be as large as, or even
larger than, the differences between family and nonfa-
mily businesses (Chua et al., 2012), these mixed find-
ings are not surprising. Second, the employed definition
for what constitutes a family firm widely varies, with
ownership cutoff percentages of the owning family
ranging from 5% (e.g., M. Cheng et al., 2015) to 25%
(e.g., De Cesari et al., 2016), or 20% ownership of
“insiders and employees” (Yarram & Adapa, 2020).
Third, the measure of “total compensation” also widely
varies across studies (see Table 1): inclusion or exclu-
sion of dividend income, stock options, benefits, cash
salary, long-term incentives, short-term incentives, and
so on. This prevents us from comparing results and
drawing conclusions from them.
Within family businesses, some researchers have
investigated compensation differences between family
and nonfamily executives. Again, results are mixed.
Several empirical findings support the extraction theory,
which suggests that family executives use their power to
extract private benefits such as excessive compensation,
thereby exploiting the firm and its outside shareholders
(e.g., Cai et al., 2013; Cheong & Kim, 2019; Jong & Ho,
2019; Kim & Han, 2018). However, some studies find
evidence for the family incentive alignment hypotheses,
which assumes that family executives have superior
incentives for maximizing firm value and are unlikely to
act against the interests of the firm, thereby needing
lower compensation levels and less incentive-based
compensation (Gomez-Mejia et al., 2003; McConaughy,
2000). Again, widely varying measures of what consti-
tutes “pay level” prevent us from drawing conclusions
on whether family executives earn more or less than
nonfamily executives in the family firm.
Apart from comparing family executives with nonfa-
mily executives, researchers have started to explore the
differences within family firms by incorporating
variables such as family representation in management
and board (Combs et al., 2010) or presence of the
founder (Barontini & Bozzi, 2018). Yet, until now,
research has failed to acknowledge the role of the family
system as driver, moderator, or outcome of incentive
compensation, with the notable exception of Yu and col-
leagues (2020), who investigated the impact of kinship
ties.
Structure of Pay
A second group of studies explored the structure of the
compensation packages that family firms used. These
focused on how compensation packages are devel-
oped, what types of incentives are likely to be offered
to executives in family firms or the proportion of vari-
able pay in the compensation package, and what the
consequences are. Most studies agree that family busi-
nesses make less use of incentive contracts (Baek &
Fazio, 2015; Memili et al., 2013; Speckbacher &
Wentges, 2012) and have lower levels of incentive pay
(Baek & Fazio, 2015; Bhabra & Hossain, 2018; Mazur
& Wu, 2016; McConaughy, 2000; Tsao et al., 2015)
when compared with nonfamily businesses. These
results are generally explained through the higher
agency costs in nonfamily firms due to severe owner-
manager conflicts.
Few studies have investigated the differences of pay
structures between family and nonfamily executives
within family businesses. In contrast to traditional
agency predictions, studies by Chrisman et al. (2007)
and Michiels et al. (2013) confirm that privately held
family businesses do use incentive compensation for
their family executives, arguing that incentive compen-
sation mitigates agency problems in private family
firms.
Other findings indicate that family businesses tend to
provide higher levels of performance-related incentive
pay to nonfamily executives as compared with family
executives (M. Cheng et al., 2015; Cui et al., 2018; Kim
& Han, 2018; McConaughy, 2000; Michiels et al.,
2013). This can be explained in two different ways.
First, given that family businesses are more likely to
keep stock ownership within the family, they make more
use of cash incentives to recruit, retain, and motivate
nonfamily executives (Carlson et al., 2006). Second,
given that family executives are inherently motivated by
the prospect of socioemotional wealth preservation (Cui
et al., 2018), they might need less incentive pay than
10 Family Business Review 00(0)
nonfamily executives. Finally, the only study investigat-
ing the outcomes of incentive compensation within fam-
ily firms is that of Gomez-Mejia and colleagues (2019),
who find that a CEO’s ties to the family influence his or
her response to incentive compensation.
Thus, the majority of papers investigating executive
pay structure focus on the difference between family
and nonfamily firms. Although a few papers address the
heterogeneity of family businesses by considering dif-
ferences between family and nonfamily executives, the
role of the family is absent in the current debate.
Pay Dispersion
Finally, a few studies focused on the issue of pay disper-
sion. Pay dispersion reflects the difference between the
compensation level of individuals, and can be from the
CEO down (i.e., vertical dispersion) or between mem-
bers of the top management team (i.e., horizontal disper-
sion). Findings indicate that family ownership increases
the likelihood of the CEO not being the highest paid
manager (Sharma & Huang, 2014), and that the use of
TMT (top management team) pay dispersion declines
across generations (Jaskiewicz, Block, Miller, & Combs,
2017). Research shows that executive pay dispersion can
have different outcomes for family than for nonfamily
firms. In particular, Ensley and colleagues (2007) find
that pay dispersion within the TMT creates strong nega-
tive behavioral consequences, especially in family firm
TMTs, where group dynamics are more complicated.
They also find that the close relationship between family
members makes these teams more vulnerable to the neg-
ative impact of pay dispersion, as already proposed by
Lansberg in his 1983 conceptual paper. Finally, Patel and
Cooper (2014) find that pay dispersion among family
and nonfamily executives harms firm performance.
With the exception of Ensley et al. (2007), all studies
on pay dispersion rely on data from public U.S. firms,
and current research again does not consider the role of
family dynamics and its potential impact on pay disper-
sion across family firms.
Theories, Methods, and
Unanswered Questions: Reflexivity
As mentioned above, our review is guided by reflexivity
and creative synthesis (Alvesson & Sandberg, 2020). This
exercise involves identifying and analyzing what may be
constraining the family business research community’s
way of thinking about the domain of executive compensa-
tion and the availability of alternative approaches that
extant research does not fully consider. Our inquiry leads
us to use insights from this analysis and existing research
frameworks to advance a new perspective to study the
topic of executive compensation in family firms.
In general, family business research has evolved in
distinct ways over the past decade (Sharma et al., 2019).
There are movements away from studies that simply
compare family with nonfamily firms (Payne, 2018),
and away from a dominant focus on financial perfor-
mance as the main motivation of family firm behavior
(Gomez-Mejia et al., 2011). There is a movement toward
family and individual-level variables as causal factors to
predict or explain firm-level behaviors (Sharma et al.,
2019). Yet, our review reveals that research on executive
compensation in family businesses has not followed this
trend. Many studies still focus on the differences in CEO
compensation between the “average” family firm and
the “average” nonfamily firm. The studies predomi-
nantly rely on agency theory assumptions, and have
been largely reluctant to consider the role of the business
family in formulating and implementing executive com-
pensation in the family firm.
Up to now, executive compensation research in fam-
ily firms emphasized topics such as level of CEO pay
and antecedents of executive compensation. Less promi-
nence was afforded to decision-making processes, out-
comes, and a consideration of specific countries and
types of family firms when exploring executive com-
pensation as well as family dynamics. Although the
findings thus far are informative, they are mainly rooted
in agency theory, such that data are collected in a way
that overlooks family and family member influence. To
move forward, we should go beyond comparing family
with nonfamily firms by exploring other aspects of
executive compensation within family firms. To do this,
alternative theories are needed to better explain the
influence the family can have on executive compensa-
tion, and other aspects that have not been explored.
Guided by our review findings, we propose that more
diverse theoretical perspectives will add a richness to
the study of family firm executive compensation. A the-
oretical grounding in family science can help guide a
new research emphasis. Theoretical perspectives in fam-
ily science move beyond a primarily business orienta-
tion to address and explain family interactions. Such a
focus will also help researchers broaden the methodolo-
gies, data collection strategies, and compensation foci
Michiels et al. 11
(i.e., consider structure or dispersion of pay, not just
level). Given the multiple instances of mixed results
observed in our review, we align with Boyd and Solarino
(2016, p. 1297) who argue that “. . . inconsistent findings
could mean that (a) researchers are not asking the right
questions (i.e., theory development issues) or (b) the
questions themselves are appropriate but are not being
studied in an optimal matter (i.e., research design
issues).” Therefore, we can integrate past findings with
different theoretical perspectives to address some of the
unresolved issues in executive compensation across the
family business literature.
Business-related theories often are used to explain
how families engage in business decision-making
(James et al., 2012). As the application of business the-
ory in family business research increases, a decrease in
the use of family science theory to explain family busi-
ness phenomena has led to unsophisticated compari-
sons of family firms to nonfamily firms (Combs et al.,
2020; James et al., 2012). Building on the arguments of
others (e.g., Jaskiewicz, Combs, et al., 2017), we sug-
gest that incorporating family science theoretical per-
spectives can provide more complete theoretical models
and an increased understanding of family influences on
various aspects of executive compensation across fam-
ily firms. Jaskiewicz and colleagues (Jaskiewicz,
Combs, Shanine and Kacmar, 2017) discussed several
prominent family science theories and their potential
usefulness, impact, and implications on management
research generally and family firm research specifi-
cally. These theories posit that early (and ongoing)
interactions and relationships in families have implica-
tions for current and future behavior of family members
and influence what occurs within a family business. For
example, some family firms are systematic in designing
executive compensation plans, while in others, adverse
outcomes result because a plan is not designed at all.
Incorporating Family Science
Theories: Creative Synthesis
As indicated by our review, the vast majority of studies
were framed with a single theoretical perspective, and
agency theory was by far the dominant approach.
However, it is neither new nor novel to say that “agency
theory presents a partial view of the world, that, although
it is valid, also ignores a good bit of the complexity of
organizations. Additional perspectives can help to cap-
ture the greater complexity” (Eisenhardt, 1989, p. 71).
Thus, to engage in creative synthesis by rethinking
existing literature in ways that generate new ways of
thinking (Alvesson & Sandberg, 2020), we introduce
family science theories by offering research questions
addressing how elements of the family system may pre-
dict and/or moderate relationships found in previous
research and provide increased understanding of execu-
tive compensation in family firms.
The three-circle model of the family business
(Tagiuri & Davis, 1996) proposes that three interde-
pendent groups make up the family business system:
family, business, and ownership. Examining one of
those subsystems, the family, implies a discussion of
family systems theory, a subset of general systems the-
ory (Broderick, 1993). Family systems theory posits
that the family is an open, complex, and hierarchical
system in which established values, rules, and rituals
guide the family’s interactions. This theory focuses on
how the family interacts and the behaviors resulting
from members’ efforts to maintain system boundaries
by removing elements threatening the rules governing
the system and its relationship with internal and exter-
nal environments.
Attitudes, behaviors, norms, and roles in an extended
family system may instill each family member with a
strong family orientation and cohesiveness rooted in the
family (Bacallao & Smokowski, 2007). The family sys-
tem can also incubate and support entrepreneurial activi-
ties among family members (Jaskiewicz et al., 2015;
Zellweger et al., 2011), perhaps affecting a family mem-
ber’s capability and desire to engage in varying levels of
risk-taking. However, the overlap between family and
business boundaries could also lead to problems with
role ambiguity and role conflict for family members.
Thus, the system can encourage family members to
engage in highly positive as well as highly negative
behaviors in an effort to maintain the system’s stability
(Kidwell et al., 2019). Examining executive compensa-
tion in family firms in light of the role of the family sys-
tem could therefore provide additional insight into how
family businesses make decisions about the compensa-
tion of family executives as well as nonfamily execu-
tives. It may also help researchers better understand the
reasons for previous mixed results in the literature. For
better or for worse, elements of the family system such
as family orientation, harmony and communication
norms, cohesiveness, and levels of risk-taking, role
ambiguity, and role conflict among its members may tell
us more about the family’s decision-making processes,
12 Family Business Review 00(0)
the structure, and the outcomes of executive compensa-
tion in the family firm. Yet virtually no research to date
has investigated these issues. Alternatively, family ele-
ments themselves might also be affected by executive
compensation decisions. Within the intergenerational
family firm, as we explain below, the effects of these
elements of the family system can be influenced by fam-
ily/family member characteristics, including sibling
birth order, parenting style, kinship ties, stage in the
family life cycle, and patterns of communication. With
these factors in mind, we see gaps in at least three gen-
eral areas:
1. In family firms, what impact do family system
elements (i.e., family members’ attitudes, behav-
iors, norms, and roles) have on executive com-
pensation decisions?
2. In family firms, how do executive compensation
decisions affect interactions and behaviors
within the family system (i.e., levels and types of
cohesion, conflict, communication among fam-
ily members)?
3. In family firms, how do family system character-
istics moderate relations between the drivers of
executive compensation and the executive com-
pensation decisions on the level, structure, and
dispersion? And how do family system charac-
teristics moderate relations between executive
compensation decisions and organizational/fam-
ily/individual outcomes (e.g., firm performance,
top management team dynamics and perfor-
mance, individual behavior and attitudes, and
changes to elements of the family system)?
Figure 1 outlines a general framework for future
research by incorporating the general research questions
provided above to the previous research focus. The fol-
lowing discourse integrates and applies family systems
and family characteristics drawn from several family
science theories that are relevant to the study of execu-
tive compensation in family firms. After considering
recent studies that focused on the application of family
science theories to management and family business
research (Combs et al., 2020; Jaskiewicz, Combs,
Shanine, & Kacmar, 2017), we identified six family sci-
ence theories that we believe are better suited to be lev-
eraged for the study of executive compensation across
family firms. These include the family-niche model of
Figure 1 Future Research on Executive Compensation in Family Firms
Michiels et al. 13
birth order and personality, parental control theory, evo-
lutionary psychology theory, kinship theory, family
development theory, and family communication patterns
theory. We provide a series of novel and significant
examples of potential research questions based on the
family science theories that are particularly relevant in
guiding future research on family firm executive com-
pensation. These research question examples are linked
to the appropriate family science theory in Table 2 and
further explained below.
The family-niche model of birth order and personal-
ity proposes that factors such as the biological composi-
tion of the family, birth intervals, and personality
differences in families influence a child’s personality
development (Paulhus et al., 1999; Sulloway, 1996).
Tests of this model found that first-born children are
more responsible and achievement-oriented than other
siblings, whereas later-borns are more socially success-
ful than their older siblings. In addition, younger chil-
dren may become lazy and spoiled as they do not face
the threat of the traumatic experience of being
“dethroned” by a second sibling’s birth (Sulloway,
1996). The model indicates that a competition may
occur among the children to find the proper niche to pro-
vide them with access to parental resources. Research
indicates that first-born children try to please their par-
ents by being responsible and becoming conscientious
adults, whereas later-born children develop an empathic
adult character that can result in rebellion (Paulhus
et al., 1999; Sulloway, 1996). Although much research
has been undertaken using the model and how it applies
to personality development, it is useful to consider its
implications for executive compensation. For example,
CEO birth order is positively associated with strategic
risk-taking—with birth order effects being driven by
sibling rivalry (Campbell et al., 2019). Previous research
has found that family members in different TMTs within
a family firm are paid differently and that this difference
declines across generations (Jaskiewicz, Block, Miller,
& Combs, 2017). Given that later-born children are
more empathetic than first-born children, who also tend
to be less demanding, we suggest that differences in
birth order may affect how a family member negotiates
compensation as an executive of the family firm. Thus,
researchers might ask How does birth order affect the
relationship between a family member’s position in the
TMT and his or her level of executive compensation in
family firms? (Research question example [RQE1]).
This theoretical framework could also be used to
explore whether there are different drivers in the execu-
tive compensation of family and nonfamily executives,
and how they affect compensation across family firms.
After all, some families are characterized by fairness
norms that promote the fulfillment of family needs and
equality between family members, and others are not.
And in business, the prevalent norm is reward based on
merit. In this context, it would be important to explore
whether position in the family (i.e., older child, younger
child) plays a role in how compensation is determined
for family members, and the nature of that role.
Exploring whether these family characteristics matter in
determining executive compensation would address
recent calls to better understand the importance of the
family system in the family business (Frank et al., 2017;
Zachary, 2011). At the same time, it would provide more
insights into the performance outcomes of pay disper-
sion in different types of family firms, which is still a
black box. Thus, researchers could address the follow-
ing by applying the family-niche model of birth order
and personality: How do birth order and the degree of
fairness norms within the family system relate to the
establishment of an executive compensation system that
is perceived as equitable by family and nonfamily execu-
tives? (RQE2), and how do perceptions of equity in the
executive compensation of family members of the TMT
relate to firm and TMT performance? (RQE3).
Higher pay dispersion in TMTs influences team
dynamics (Ensley et al., 2007). In particular, the higher
the dispersion, the greater potential for affective and
cognitive conflict, the lower the cohesion of the team,
and the lower the effectiveness of the team. As noted,
birth order potentially influences an individual’s dispo-
sition. When family top management teams of siblings
are composed of a wide difference in age, such diversity
is likely to enhance the negative effects of team disper-
sion by creating more conflict due to the age differences
between members. Drawing on the family-niche model
of birth order and personality, scholars could gain fur-
ther insights by asking How does birth order composi-
tion of the TMT moderate the relationship between pay
dispersion and team dynamics in the family firm?
(RQE4).
Parental control theory identified three dominant par-
enting styles (authoritarian, authoritative, and permis-
sive) and found that each of the parents’ styles had a
different impact on the characteristics of their children
14 Family Business Review 00(0)
(Baumrind, 1967, 1971) in terms of self-reliance, con-
trol, contentment, and trust. Parenting style not only
affects how children behave as adults, but—in addition
to the family’s social environment—it has implications
for how the children would behave relative to others in
the family and the family firm. In summary, authorita-
tive (demanding, yet warm) parenting generally leads
to self-reliant, self-controlled, and content children,
whereas authoritarian parents—detached, controlling
and less warm than other parents—have children who
are relatively discontent, withdrawn, and distrustful.
Finally, the children of permissive parents (neither
demanding nor controlling but relatively warm) are the
least self-reliant, explorative, and self-controlled
(Baumrind, 1971).
The family-niche model of birth order combined with
parental control theory may help guide the study of how
the best fit between compensation structure and the
executive is determined. For example, our review indi-
cated that very little is known concerning the anteced-
ents and consequences of pay dispersion within the
family firm TMT. These theories could therefore also be
used to explore pay dispersion within family firm top
management teams consisting of siblings and children
raised by parents with different parenting styles. The
mix of first- and later-born children and parenting style
may affect the effectiveness of the TMT. Teams com-
posed of all later-born siblings may possess higher lev-
els of openness to experience that allows them to
effectively manage ambiguity (Healey & Ellis, 2007).
Teams composed of all first-born siblings from across
different family units may suffer because their higher
levels of conscientiousness and their desire to seek
orderliness rather than accept ambiguity may result in
all of them maneuvering to be the leader. In mixed
teams, first-born siblings may attempt to create order
Table 2. Sample Research Questions.
# Research question examples (RQE) Theoretical framework
1 How does birth order affect the relationship between a family member’s position in the
TMT and his/her level of executive compensation in family firms?
The family-niche model
of birth order and
personality (Sulloway,
1996)
2 How do birth order and the degree of fairness norms within the family system relate to the
establishment of an executive compensation system that is perceived as equitable by family
and nonfamily executives?
3 How do perceptions of equity in the executive compensation of family members of the TMT
relate to firm and TMT performance?
4 How does birth order composition of the TMT moderate the relationship between pay
dispersion and team dynamics in the family firm?
5 How does the mix of first- and later-born children in the family firm’s TMT moderate the
relationship between TMT pay dispersion and its outcomes? Parental control theory
(Baumrind, 1967,
1971)
6 How does the dominant parenting style (authoritarian, authoritative, permissive)
experienced by team members who are offspring of the previous generation affect the
outcomes of TMT pay dispersion?
7 How does the degree of kinship ties between family members in the dominant family
coalition moderate the relationship between the selection and type of executive in the
team (family vs. nonfamily) and the level of pay received? Evolutionary psychology
theory and kinship
theory (Stewart, 2003)
8 How do kinship ties of family members moderate the relationship between pay fairness
perceptions of family members and their degree of stewardship toward the firm?
9 How is the relationship between incentive-based compensation and business risk-taking by
the family CEO moderated by the current stage and norms of the CEO’s family life cycle?
Family development
theory (Duvall, 1988)
10 Is the relation between executive compensation as a source of extrinsic motivation and
the sense of accomplishment associated with attaining its individual-level outcomes as an
intrinsic reward moderated by elements of the family system (such as cohesion, family
communication patterns, and flexibility)?
Family communications
patterns theory
(Ritchie & Fitzpatrick,
1990)
CEO = chief executive officer; TMT = top management team.
Michiels et al. 15
that later-born siblings resist. Children whose parents
displayed authoritarian parenting styles may be less
trustful of the structure and mechanisms of the executive
compensation scheme, while those raised by authorita-
tive parents may possess an achievement orientation that
fits well with a merit-based compensation system. The
composition of the sibling (or cousin) TMT may thus
have a strong impact on the actual outcome of TMT pay
dispersion in terms of firm-level (e.g., firm perfor-
mance), team-level (e.g., team performance), and indi-
vidual-level outcomes (e.g., justice perceptions)
Applying the family-niche model of birth order com-
bined with parental control theory, scholars may seek to
answer questions such as How does the mix of first- and
later-born children in the family firm’s TMT moderate
the relationship between TMT pay dispersion and its
outcomes? (RQE5), and How does the dominant parent-
ing style (authoritarian, authoritative, permissive) expe-
rienced by team members who are offspring of the
previous generation affect the outcomes of TMT pay dis-
persion? (RQE6). Multitheoretic studies could use vari-
ous theoretical perspectives (e.g., family science and
more traditional theories such as agency theory) for
building individual hypotheses, or to see which theoreti-
cal perspectives have greater explanatory power (Boyd
& Solarino, 2016). For example, the interaction of birth
order and personality with parenting style on executive
compensation might be contrasted in future research
with predictions emanating from tournament theory
(Ensley et al., 2007; Lazear & Rosen, 1981) and equity
theory (Deutsch, 1985) in the use of merit-based execu-
tive compensation among teams of siblings and the
competition for high performance within the TMT.
Evolutionary psychology theory and kinship theory
provide family-oriented frames in which to examine the
diversity of families that own and operate businesses
and to study executive compensation across family
firms (Yu et al., 2020). The biological view of kinship
ties goes well beyond the close connections of spouses,
children, and siblings to consider more distant kin such
as cousins, aunts, uncles, in-laws, grandparents, and
grandchildren (Stewart, 2003). Evolutionary theory pos-
its that the importance of kinship ties in the family firm
assists in understanding how a family’s identity con-
nects to the firm, the level of diverse interests between
close kin and distant relatives, and how these interests
interact (Nicholson, 2015).
Kinship ties can have negative effects on family firm
executive compensation and performance (M. Cheng
et al., 2015; Miller et al., 2007) by motivating family
firm leaders to engage in such activities as nepotism (hir-
ing and promoting family members regardless of merit),
increased blurring of the lines between family and nonfa-
mily matters, and pursuit of noneconomic goals (e.g.,
socioemotional wealth) potentially at the expense of eco-
nomic objectives (Bertrand & Schoar, 2006; O’Brien
et al., 2018). A recent study (Yu et al., 2020) found that—
compared with family firms with close kinship ties—
family firms with distant kinship ties were more likely to
appoint a nonfamily CEO and to pay nonfamily execu-
tives lower salaries. Examining employee theft in family
firms, O’Brien and colleagues (2018) proposed that
genetically related family members receive preferential
treatment, and a history of such privileges can lead these
employees to misuse company resources. They found
that purported genetic relatedness to the owner of a busi-
ness increased an employee’s theft intentions and
decreased the expected severity of sanctions. Studies
such as these indicate additional research involving evo-
lutionary theory, kinship ties, and executive compensa-
tion across family firms is warranted. For example, due
to entitlement and altruism that may flow to closely con-
nected family members through their kinship ties, the
relation between selection of executive, type of execu-
tive, and level of pay may be influenced. This leads to
research questions such as How does the degree of kin-
ship ties between family members in the dominant family
coalition moderate the relationship between the selection
and type of executive in the team (family vs. nonfamily)
and the level of pay received? (RQE7).
Researchers might also investigate the extent to
which kinship ties (e.g., close vs. distant vs. a mixture of
each) between TMT family members affect the drivers
of pay dispersion as well as the outcomes of pay disper-
sion; these might include pay satisfaction, justice per-
ceptions, stewardship, and team performance. In some
cases, the impact of evolutionary theory and kinship
theory may have positive moderating effects. For exam-
ple, in some instances, the level of pay TMT family
members receive for leading the family firm can influ-
ence the level of fairness these members perceive and
make them less likely to engage in stewardship behav-
ior, which significantly contributes to the well-being of
the firm and the family. However, when kinship ties
among family members are close, this may reduce the
negative relationship between level of pay and steward-
ship behavior due to the executive’s feelings of obliga-
tion toward the family. Thus, another interesting research
question could be How do kinship ties of family mem-
bers moderate the relationship between pay fairness
16 Family Business Review 00(0)
perceptions of family member executives and their
degree of stewardship toward the firm? (RQE8).
Family development theory (e.g., Duvall, 1988) con-
siders family transitions as the family moves through
life cycle stages, how the development of each family
member affects overall family development and vice
versa as family norms systematically shift across the
family’s life cycle (Duvall, 1962). Families that can
anticipate changes from one life cycle stage to the next
are better equipped to manage transitions among stages.
A link between family development stage and financial
risk-taking (Chaulk et al., 2003) might be pertinent for
top managers who still have children at home and that
condition might interact with other factors that influence
risk-taking, such as aspects of CEO compensation. For
example, the impact of stock options on aggressive risk-
taking might be less when executives are still raising
family at home. Interestingly, this issue might be consid-
ered across all firms, not just family businesses. Other
connections between the business life cycle and the fam-
ily life cycle might affect the forms of executive com-
pensation that are used by the firm as well as the process
in which TMT compensation is established in family
firms. In this regard, a promising line of inquiry might
be the extent to which relationships between stock
options and other incentive-based forms of compensa-
tion and aggressive risk-taking by the family CEO are
moderated by the current stage of family development
and the norms guiding decisions made in that stage. This
discourse inspires the following research question: How
is the relationship between incentive-based compensa-
tion and business risk-taking by the family CEO moder-
ated by the current stage and norms of the CEO’s family
life cycle? (RQE9).
Finally, family communication patterns theory con-
siders how communication norms in a family are influ-
enced by in-family patterns of agreement and
disagreement within the family (Ritchie & Fitzpatrick,
1990) and the degree to which effective communication
through conversation and/or conformity occurs in fami-
lies. In families that have a high conversational orienta-
tion, family members are encouraged to discuss any
topic. When a high conformity orientation is present,
family members emphasize accepting the same atti-
tudes, values, and beliefs (Fitzpatrick & Ritchie, 1994).
This theory—in combination with the family systems’
circumplex model, which stresses balance among cohe-
sion, flexibility, and communication in a family system
(Olson, 2000)—could be used to explore the executive
compensation decision-making process and the levels
and types of communication that occur through family
meetings and written family documents, such as family
constitutions and agreements. For example, they can be
used to explore what executive compensation means to
family members in terms of motivation and rewards.
The type of communication patterns and the degree of
balance between the family system and the business
system provide fertile areas for future research regard-
ing the decision-making process in many family firm
activities including the development and implementa-
tion of an executive compensation system. Pieper
(2010, p. 28) identified the “likely existence of moder-
ating variables that impact the relationship between
extrinsic and intrinsic motivation.” In our case, execu-
tive compensation can be considered a source of extrin-
sic motivation, and the resulting individual-level
behavior and attitudes can be a source of intrinsic moti-
vation for the executive. Based on the discussion above,
the communication patterns and the degree of balance
between family and business systems might moderate
relationships between the motivational effects of execu-
tive compensation on the achievement and the value of
its individual outcomes. Thus, potential research ques-
tions abound. We propose one example: Is the relation
between executive compensation as a source of extrin-
sic motivation and the sense of accomplishment associ-
ated with attaining its individual-level outcomes as an
intrinsic reward moderated by elements of the family
system (such as cohesion, family communication pat-
terns, and flexibility)? (RQE 10).
Discussion and Conclusion
This study reviews the literature on executive compen-
sation in family firms and discusses the drivers and out-
comes of executive pay levels, pay structure, and pay
dispersion. It shows that a focus on publicly traded com-
panies, reliance on secondary data, and extensive agency
theory assumptions dominate the field. Guided by
reflexivity and creative synthesis (Alvesson & Sandberg,
2020), we hold that current theorizing on executive
compensation in family businesses has not sufficiently
integrated the role of family dynamics. In this article, we
therefore incorporated family science theories to guide
future research, as elements of the family system may
give us important insights about the family’s decision-
making processes, the structure, and the outcomes of
executive compensation in the family firm. We believe
the sample research questions advanced here may
inspire researchers to think differently about executive
Michiels et al. 17
compensation in family firms and to broaden the
research focus theoretically and empirically.
Family businesses are characterized by the reciprocal
relationship between the family system and the business
system (Sharma, 2004). However, much of the research
about family businesses so far has been nested within
the business system (Combs et al., 2020; Odom et al.,
2019). This emphasis is due in part to a reliance on theo-
ries that come from business-related scholarship (Combs
et al., 2020), and often leads to overly simplistic com-
parisons between family and nonfamily businesses,
ignoring the richness and complexities of family firms
(James et al., 2012). This may lead practitioners to per-
ceive academic research on the issue as distant from
reality, and therefore to often rely on anecdotal evidence
and “best practices” when designing executive compen-
sation policies. Yet, “the gap between best practices and
a more thorough understanding of cause and effect may
be a rich zone for meaningful academic research, which
can explain why and how certain practices work (or do
not work) in specific contexts” (Binz Astrachan et al.,
2021, p. 1). To that end, with this article, we encourage
researchers to examine executive compensation in
family businesses in light of the role of the family sys-
tem. Research questions abound; we point to several
sample research questions based on family science
theories that may help researchers better understand
the reasons for the previous mixed results in the litera-
ture. In addition, this focus might provide additional
insight into how family businesses make decision
about the compensation of family executives as well as
nonfamily executives, and how the family system
affects all aspects of the framework (antecedents, deci-
sion-making process, and outcomes) (see Figure 1).
This way, future research can inform family business
advisors and owners on the specific conditions under
which certain compensation practices might obtain the
desired effects, thereby obtaining an adequate family-
practice fit (Binz Astrachan et al., 2021).
To address the research questions advanced in the
previous section, some methodological considerations
and strategies to guide future research are important to
highlight. In addition to the narrow theoretical focus dis-
cussed earlier, perhaps the most problematic trend
revealed from our review, is one that is shared with gen-
eral studies of executive compensation (Devers et al.,
2007; Gerhart et al., 2009; Gomez-Mejia & Wiseman,
1997). We observed a lack of methodological consis-
tency throughout the different studies of executive
compensation in family firms. More specifically, the
operationalization of what constitutes “executive com-
pensation,” “pay dispersion,” “firm performance,” or
“performance-related pay” varies greatly in the litera-
ture we reviewed generating multiple dependent vari-
ables across studies. In a field based on theoretical
frameworks that specifically discuss the performance-
pay and pay-performance relations, this is troubling, and
makes it very difficult to compare the findings. Thus, to
advance the field and facilitate comparison across stud-
ies, future researchers should carefully explain how the
variables are measured and employ multiple measures to
serve as robustness tests. Similarly, given that perfor-
mance can be both an important driver and outcome of
executive compensation, researchers need to be clear in
arguments and measurement to avoid confusion when
conducting reviews or meta-analyses.
Most of the data used to study executive compensa-
tion issues in family firms come from financial data-
bases. However, a shift in interest toward family
dynamics will require researchers to include factors
such as emotions, perceptions, and behaviors associated
with executive compensation. To incorporate these fac-
tors, future research should consider a wider variety of
methodologies that can help us better understand this
topic. For example, researchers could consider qualita-
tive approaches to understand how executive compensa-
tion can affect the motivation of family and nonfamily
executives. Researchers could also use experimental
research designs to understand some of these dynamics.
Another possibility is a multiple respondent approach,
which would allow researchers to gain representative-
ness by forming a consensus-based data set in which
method biases caused by individual respondents’ affect
or mood are reduced (e.g., Chua et al., 1999; Holt et al.,
2017; Podsakoff et al., 2003). This means that as we
open up this research field, by expanding its focus, we
can also expand the type of data and information we can
obtain, providing a wider methodological perspective of
the field. Finally, future research could also consider
multilevel designs and explorations. In the study of pre-
dictors, it may be that factors at different levels of analy-
sis drive executive compensation. Thus, we could also
employ multilevel methodologies to advance under-
standing of how these mechanisms affect executive
compensation in family firms.
One way to broaden the methodological approaches
used is to collect information through interviews or sur-
veys with human resource managers, executives, family
18 Family Business Review 00(0)
members, and board members who can explain the dif-
ferent processes that family businesses follow when
determining how both family and nonfamily executives
will be paid. A rigorous qualitative research approach
could help investigators build and test theory in this
important area. It would also be useful to explore the
specific governance policies or practices that families
and family businesses develop to guide their executive
compensation practices, and to what extent this process
is formalized and unique. For example, it is useful to
understand whether family constitutions stipulate poli-
cies regarding compensation of family executives in the
firm, and what is tied to compensation of higher level
executives in the family firm. Exploration of these issues
can promote collaboration from researchers who focus
on corporate governance, finance, and human resources
within family firms. In addition, findings in these new
areas could better inform family business owners as to
best practice approaches to the development of compen-
sation packages within the family firm.
One final aspect generally overlooked in this research
is the importance that cultural context can bring to our
understanding of drivers and outcomes linked to com-
pensation. Some of our findings provide evidence for
differences among China, Africa, the United States, and
Europe. Thus, it would be important for researchers to
employ cultural context to interpret the results they
obtain. After all, family systems differ greatly across
cultures (Morioka, 1967). For example, in some cul-
tures, entrepreneurs are expected to redistribute their
wealth generously among their kin, and failure to do so
can lead to painful emotional conflicts (Stewart & Hitt,
2012; Watson, 2007). These norms of cultural kinship,
which are often at odds with economic reality, could
have a serious impact on family firm executive compen-
sation systems, and would be very interesting to explore.
In sum, as review articles “design trajectories, pro-
vide roadmaps that guide academic readers trough con-
voluted paths and set the direction of travel” (Patriotta,
2020, p. 1276), we hope that our article will stimulate
researchers to examine compensation in family busi-
nesses in light of the role of the family system to advance
family business knowledge and research.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with
respect to the research, authorship, and/or publication of this
article.
Funding
The author(s) received no financial support for the research,
authorship, and/or publication of this article.
ORCID iDs
Anneleen Michiels https://orcid.org/0000-0002-2417-
0106
Isabel C. Botero https://orcid.org/0000-0001-7125-1964
Roland E. Kidwell https://orcid.org/0000-0002-8482-
3826
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Author Biographies
Anneleen Michiels, PhD, is an Associate Professor of Finance
and Family business at the Research Center for Entrepreneurship
and Family firms at Hasselt University, Belgium. She is a for-
mer chair of the Strategic Interest Group on Family Business
Research at the European Academy of Management and a past
Scholar in Residence at the Family Owned Business Institute.
Her research focuses on the influence of money on the family
business and the business family and is published in academic
as well as practitioner-oriented journals.
Isabel C. Botero, PhD, is a faculty member at the University
of Louisville. She is a fellow at Family Firm Institute, a
Certified Exit Planning Advisor, and has an Advanced
Certificate in Family Wealth Advising. Her research focuses
on strategic processes, governance, and next-generation
issues in family enterprises. She is an associate editor for the
journal of family business strategy and a past Scholar in
Residence at the Family Owned Business Institute. Her work
is published in management, communication, and family
business journals.
Roland E. Kidwell, PhD, Louisiana State University, is
DeSantis Distinguished Professor of Management, chair of the
Management Programs Department, and director of the Adams
Center for Entrepreneurship in the College of Business at
Florida Atlantic University. His research focuses on executive
compensation, succession, and dysfunctional behavior in fam-
ily firms. His work has appeared in the Academy of
Management Review, Journal of Management, Journal of
Business Venturing, Entrepreneurship Theory and Practice,
Human Resource Management, and other journals.
